Registration No. 2-60067
As filed with the Securities and Exchange Commission on December 24, 1997
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 30 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 31 X
(Check appropriate box or boxes)
TEMPLETON FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
500 EAST BROWARD B0ULEVARD, FORT LAUDERDALE, FLORIDA 33394
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (957) 527-7500
Barbara J. Green
Templeton Worldwide, Inc.
500 East Broward Boulevard
FORT LAUDERDALE, FLORIDA 33394
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of Rule 485
X on JANUARY 1, 1998 pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(1) of Rule 485
on pursuant to paragraph (a)(1) of Rule 485
75 days after filing pursuant to paragraph (a)(2) of Rule 485
on pursuant to paragraph (a)(2) of Rule 485
this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
<PAGE>
TEMPLETON FUNDS, INC.
CROSS-REFERENCE SHEET
FORM N-1A
PART A
TEMPLETON WORLD FUND
CLASS I & II PROSPECTUS
<TABLE>
<CAPTION>
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
<S> <C> <C>
1 Cover page Cover Page
2 Synopsis Expense Summary
3 Condensed Financial "Financial Highlights";
Information "How Does the Fund
Measure Performance?"
4 General Description "How Is the Fund Organized?";
of Registrant "How Does the Fund Invest Its Assets?";
"What Are the Risks of Investing in the
Fund?"
5 Management of the Fund "Who Manages the Fund?"
5A Management's Discussion Contained in Registrant's Annual
of Fund Performance Report to Shareholders
6 Capital Stock and Other "How Is the Fund Organized?"; "Services
Securities to Help You Manage Your Account"; "What
Distributions Might I Receive From the
Fund?"; "How Taxation Affects the Fund
and its Shareholders?"
7 Purchase of Securities "How Do I Buy Shares?"; "May I Exchange
Being Offered Shares for Shares of Another Fund?";
"Transaction Procedures and Special
Requirements"; "Services to Help You Manage
Your Account"; "Who Manages the Fund?" "Useful
Terms and Definitions"
8 Redemption or Repurchase "May I Exchange Shares for Shares of Another
Fund?"; "How Do I Sell Shares?"; "Transaction
Procedures and Special Requirements"; "Services
to Help You Manage Your Account"
9 Pending Legal Procedures Not Applicable
</TABLE>
<PAGE>
TEMPLETON FUNDS, INC.
CROSS-REFERENCE SHEET
FORM N-1A
PART A
TEMPLETON FOREIGN FUND
CLASS I & II PROSPECTUS
<TABLE>
<CAPTION>
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
<S> <C> <C>
1 Cover page Cover Page
2 Synopsis Expense Summary
3 Condensed Financial "Financial Highlights";
Information "How Does the Fund
Measure Performance?"
4 General Description "How Is the Fund Organized?";
of Registrant "How Does the Fund Invest Its Assets?";
"What Are the Risks of Investing in
the Fund?"
5 Management of the Fund "Who Manages the Fund?"
5A Management's Discussion Contained in Registrant's Annual
of Fund Performance Report to Shareholders
6 Capital Stock and Other "How Is the Fund Organized?"; "Services
Securities to Help You Manage Your Account"; "What
Distributions Might I Receive From the
Fund?"; "How Taxation Affects the Fund
and its Shareholders"
7 Purchase of Securities "How Do I Buy Shares?"; "May I Exchange
Being Offered Shares for Shares of Another Fund?";
"Transaction Procedures and Special
Requirements"; "Services to Help You Manage
Your Account"; "Who Manages the Fund?" "Useful
Terms and Definitions"
8 Redemption or Repurchase "May I Exchange Shares for Shares of Another
Fund?"; "How Do I Sell Shares?"; "Transaction
Procedures and Special Requirements"; "Services
to Help You Manage Your Account"
9 Pending Legal Procedures Not Applicable
</TABLE>
<PAGE>
TEMPLETON FUNDS, INC.
CROSS-REFERENCE SHEET
FORM N-1A
PART A
TEMPLETON FOREIGN FUND
ADVISOR CLASS PROSPECTUS
<TABLE>
<CAPTION>
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
<S> <C> <C>
1 Cover page Cover Page
2 Synopsis Expense Summary
3 Condensed Financial "Financial Highlights";
Information "How Does the Fund
Measure Performance?"
4 General Description "How Is the Fund Organized?";
of Registrant "How Does the Fund Invest Its Assets?";
"What Are the Risks of Investing in
the Fund?"
5 Management of the Fund "Who Manages the Fund?"
5A Management's Discussion Contained in Registrant's Annual
of Fund Performance Report to Shareholders
6 Capital Stock and Other "How Is the Fund Organized?"; "Services
Securities to Help You Manage Your Account"; "What
Distributions Might I Receive From the
Fund?"; "How Taxation Affects the Fund
and its Shareholders"
7 Purchase of Securities "How Do I Buy Shares?"; "May I Exchange
Being Offered Shares for Shares of Another Fund?";
"Transaction Procedures and Special
Requirements"; "Services to Help You Manage
Your Account"; "Who Manages the Fund?" "Useful
Terms and Definitions"
8 Redemption or Repurchase "May I Exchange Shares for Shares of Another
Fund?"; "How Do I Sell Shares?"; "Transaction
Procedures and Special Requirements"; "Services
to Help You Manage Your Account"
9 Pending Legal Procedures Not Applicable
</TABLE>
<PAGE>
TEMPLETON FUNDS, INC.
CROSS-REFERENCE SHEET
FORM N-1A
PART B
TEMPLETON FUNDS, INC.
CLASS I & II
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
<S> <C> <C>
10 Cover Page Cover Page
11 Table of Contents Table of Contents
12 General Information and Not Applicable
History
13 Investment Objectives and "How Do the Funds Invest Their Assets?";
Policies "Investment Restrictions"; "What Are the
Risks of Investing in the Funds'?"
14 Management of the "Officers and Directors"; "Investment
Registrant Management and Other Services"
15 Control Persons and "Officers and Directors"; "Investment
Principal Holders of Management and Other Services"; "Miscellaneous
Securities Information?"
16 Investment Advisory and "Investment Management and Other Services";
Other Services "The Funds' Underwriter"
17 Brokerage Allocation and "How Do the Funds Buy Securities
Other Practices For Their Portfolios?"
18 Capital Stock and Other "Miscellaneous Information"; See Prospectus
Securities "How Is The Fund Organized?"
19 Purchase, Redemption and "How Do I Buy, Sell and Exchange Shares?";
Pricing of Securities "How Are Fund Shares Valued?";
Being Offered "Financial Statements"
20 Tax Status "Additional Information on Distributions
and Taxes"
21 Underwriters "The Funds' Underwriter"
22 Calculation of Performance "How Do the Funds Measure Performance?"
Data
23 Financial Statements Financial Statements
</TABLE>
<PAGE>
TEMPLETON FUNDS, INC.
CROSS-REFERENCE SHEET
FORM N-1A
PART B
TEMPLETON FOREIGN FUND
ADVISOR CLASS
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
<S> <C> <C>
10 Cover Page Cover Page
11 Table of Contents Table of Contents
12 General Information and Not Applicable
History
13 Investment Objectives and "How Does the Fund Invest Its Assets?";
Policies "Investment Restrictions"; "What Are the
Risks of Investing in the Fund?"
14 Management of the "Officers and Directors"; "Investment
Registrant Management and Other Services"
15 Control Persons and "Officers and Directors"; "Investment
Principal Holders of Management and Other Services"; "Miscellaneous
Securities Information?"
16 Investment Advisory and "Investment Management and Other Services";
Other Services "The Fund's Underwriter"
17 Brokerage Allocation and "How Does the Fund Buy Securities
Other Practices For Its Portfolios?"
18 Capital Stock and Other "Miscellaneous Information"; See Prospectus
Securities "How Is The Fund Organized?"
19 Purchase, Redemption and "How Do I Buy, Sell and Exchange Shares?";
Pricing of Securities "How Are Fund Shares Valued?";
Being Offered "Financial Statements"
20 Tax Status "Additional Information on Distributions
and Taxes"
21 Underwriters "The Fund's Underwriter"
22 Calculation of Performance "How Does the Fund Measure Performance?"
Data
23 Financial Statements Financial Statements
</TABLE>
<PAGE>
PART A
TEMPLETON WORLD FUND
CLASS I & II
PROSPECTUS
<PAGE>
PROSPECTUS & APPLICATION
INVESTMENT STRATEGY: Templeton
GLOBAL GROWTH World
Fund
JANUARY 1, 1998
[LOGO]
FRANKLIN TEMPLETON
This prospectus describes Class I and Class II shares of Templeton World Fund
(the "Fund"). It contains information you should know before investing in the
Fund. Please keep it for future reference.
The Fund is a diversified series of Templeton Funds, Inc. (the "Company"), an
open-end management investment company. The Company has a Statement of
Additional Information ("SAI"), dated January 1, 1998, which may be amended from
time to time. It includes more information about the Fund's procedures and
policies. It has been filed with the SEC and is incorporated by reference into
this prospectus. For a free copy or a larger print version of this prospectus,
call 1-800/DIAL BEN.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TEMPLETON
WORLD FUND
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES
REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
<PAGE>
TEMPLETON
WORLD
FUND
January 1, 1998
When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section.
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary.............................. 2
Financial Highlights......................... 4
How Does the Fund Invest Its Assets?......... 6
What Are the Risks of Investing in the Fund?. 9
Who Manages the Fund?........................ 12
How Does the Fund Measure Performance?....... 14
How Taxation Affects the Fund and
Its Shareholder............................ 15
How Is the Fund Organized?................... 20
ABOUT YOUR ACCOUNT
How Do I Buy Shares?......................... 21
May I Exchange Shares for Shares of
Another Fund?.............................. 28
How Do I Sell Shares?........................ 32
What Distributions Might I Receive
From the Fund?............................. 36
Transaction Procedures and Special
Requirements............................... 37
Services to Help You Manage Your Account..... 42
What If I Have Questions About My Account?... 44
GLOSSARY
Useful Terms and Definitions................. 46
100 FOUNTAIN PARKWAY
P.O. BOX 33030
ST. PETERSBURG, FL 33733-8030
1-800/DIAL BEN
<PAGE>
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
Fund. It is based on the historical expenses of each class for the fiscal year
ended August 31, 1997. The Fund's actual expenses may vary.
A. SHAREHOLDER TRANSACTION EXPENSES/+/
<TABLE>
<CAPTION>
CLASS I CLASS II
<S> <C> <C>
Maximum Sales Charge
(as a percentage of Offering 5.75% 1.99%
Price)
Paid at time of purchase 5.75%++ 1.00%+++
Paid at redemption++++ NONE 0.99%
Exchange Fee (per transaction) $5.00* $5.00*
B. ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.61% 0.61%
Rule 12b-1 Fees 0.20%** 1.00%**
Other Expenses 0.22% 0.22%
---- -------
Total Fund Operating 1.03% 1.83%
Expenses
</TABLE>
C. EXAMPLE
Assume the annual return for each class is 5%, operating expenses are as
described above, and you sell your shares after the These are the projected
expenses for each $1,000 that you invest in the Fund.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
- -------------- ------------ ---------------- -------------- -------------
Class I $67*** $88 $111 $176
Class II $38 $67 $108 $223
</TABLE>
For the same Class II investment, you would pay projected expenses of $28 if
you did not sell your shares at the end of the first year. Your projected
expenses for the remaining periods would be the same.
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund pays its operating expenses. The effects of these expenses are
reflected in the Net Asset Value or dividends of each class and are not
directly charged to your account.
+IF YOUR TRANSACTION IS PROCESSED THROUGH YOUR SECURITIES DEALER, YOU MAY BE
CHARGED A FEE BY YOUR SECURITIES DEALER FOR THIS SERVICE.
++THERE IS NO FRONT-END SALES CHARGE IF YOU INVEST $1 MILLION OR MORE IN CLASS I
SHARES.
+++ALTHOUGH CLASS II HAS A LOWER FRONT-END SALES CHARGE THAN CLASS I, ITS RULE
12B-1 FEES ARE HIGHER. OVER TIME YOU MAY PAY MORE FOR CLASS II SHARES. PLEASE
SEE "HOW DO I BUY SHARES? -- CHOOSING A SHARE CLASS."
++++A CONTINGENT DEFERRED SALES CHARGE MAY APPLY TO ANY CLASS II PURCHASE IF YOU
SELL THE SHARES WITHIN 18 MONTHS AND TO CLASS I PURCHASES OF $1 MILLION OR MORE
IF YOU SELL THE SHARES WITHIN ONE YEAR. A CONTINGENT DEFERRED SALES CHARGE MAY
ALSO APPLY TO PURCHASES BY CERTAIN RETIREMENT PLANS THAT QUALIFY TO BUY CLASS I
SHARES WITHOUT A FRONT-END SALES CHARGE. THE CHARGE IS 1% OF THE VALUE OF THE
SHARES SOLD OR THE NET ASSET VALUE AT THE TIME OF PURCHASE, WHICHEVER IS LESS.
THE NUMBER IN THE TABLE SHOWS THE CHARGE AS A PERCENTAGE OF OFFERING PRICE.
WHILE THE PERCENTAGE IS DIFFERENT DEPENDING ON WHETHER THE CHARGE IS SHOWN BASED
ON THE NET ASSET VALUE OR THE OFFERING PRICE, THE DOLLAR AMOUNT PAID BY YOU
WOULD BE THE SAME. SEE "HOW DO I SELL SHARES? -- CONTINGENT DEFERRED SALES
CHARGE" FOR DETAILS.
*$5.00 FEE IS ONLY FOR MARKET TIMERS. WE PROCESS ALL OTHER EXCHANGES WITHOUT A
FEE.
**THESE FEES MAY NOT EXCEED 0.25% FOR CLASS I AND 1.00% FOR CLASS II. THE
COMBINATION OF FRONT-END SALES CHARGES AND RULE 12B-1 FEES COULD CAUSE LONG-TERM
SHAREHOLDERS TO PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM FRONT-END
SALES CHARGE PERMITTED UNDER THE NASD'S RULES.
***ASSUMES A CONTINGENT DEFERRED SALES CHARGE WILL NOT APPLY.
<PAGE>
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's financial history. The information has been
audited by McGladrey & Pullen, LLP, the Fund's independent auditors. Their audit
report covering each of the most recent five years appears in the financial
statements in the Fund's Annual Report to Shareholders for the fiscal year ended
August 31, 1997. The Annual Report to Shareholders also includes more
information about the Fund's performance. For a free copy, please call Fund
Information.
<TABLE>
<CAPTION>
CLASS I SHARES
YEAR ENDED AUGUST 31 1997 1996 1995
--------------------------------------- ------------- -------------- -------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year $ 16.21 $ 16.76 $ 17.06
------------- ------------- --------------
Income from investment operations:
Net investment income .45 .41 .33
Net realized and unrealized gains 4.47 1.29 1.11
(losses)
------------- -------------- -------------
Total from investment operations 4.92 1.70 1.44
------------- -------------- -------------
Less distributions:
Dividends from net investment income (.43) (.37) (.28)
Distributions from net realized (1.04) (1.88) (1.46)
gains
------------- -------------- -------------
Total distributions (1.47) (2.25) (1.74)
------------- -------------- -------------
Net asset value, end of year $ 19.66 $ 16.21 $ 16.76
============= ============== =============
TOTAL RETURN/1/ 32.70% 11.73% 9.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $ 8,649,994 $ 6,483,146 $ 5,868,967
Ratios to average net assets:
Expenses 1.03% 1.03% 1.05%
Net investment income 2.58% 2.66% 2.18%
Portfolio turnover rate 39.16% 22.05% 34.05%
Average commission rate paid/2/ $ .0010 $ .0130 --
</TABLE>
/1/ TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS.
/2/ RELATES TO PURCHASES AND SALES OF EQUITY SECURITIES. PRIOR TO FISCAL YEAR
END 1996 DISCLOSURE OF AVERAGE COMMISSION RATE WAS NOT REQUIRED.
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 15.94 $ 14.42 $ 15.05 $ 14.70 $ 17.30 $ 14.43 $ 19.05
-------------- ------------- ------------- ------------- -------------- ------------- -------------
.26 .30 .41 .46 .53 .54 .47
2.50 2.81 .67 1.16 (2.04) 3.31 (2.53)
-------------- ------------- ------------- ------------- -------------- ------------- -------------
2.76 3.11 1.08 1.62 (1.51) 3.85 (2.06)
-------------- ------------- ------------- ------------- -------------- ------------- -------------
(.26) (.38) (.42) (.52) (.56) (.38) (.61)
(1.38) (1.21) (1.29) (.75) (.53) (.60) (1.95)
-------------- ------------- ------------- ------------- -------------- ------------- -------------
(1.64) (1.59) (1.71) (1.27) (1.09) (.98) (2.56)
-------------- ------------- ------------- ------------- -------------- ------------- -------------
$ 17.06 $ 15.94 $ 14.42 $ 15.05 $ 14.70 $ 17.30 $ 14.43
============== ============= ============= ============= ============== ============= =============
18.87% 24.71% 8.13% 12.95% (9.39)% 28.30% (8.79)%
$ 5,421,691 $ 4,621,124 $ 4,046,706 $ 4,129,635 $ 4,072,639 $ 4,728,104 $ 3,844,126
1.04% 1.02% .86% .72% .69% .69% .68%
1.67% 2.13% 2.76% 3.23% 3.28% 3.54% 3.06%
30.77% 23.86% 26.60% 22.90% 19.90% 15.56% 20.45%
-- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
CLASS II SHARES
YEAR ENDED AUGUST 31 1997 1996 1995(1)
---------------------------------------- ------------ ---------- ------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year $ 16.04 $ 16.71 $ 15.36
------------ ---------- ------------
Income from investment operations:
Net investment income .34 .45 .03
Net realized and unrealized gains 4.39 1.11 1.32
------------ ---------- ------------
Total from investment operations 4.73 1.56 1.35
------------ ---------- ------------
Less distributions:
Dividends from net investment income (.34) (.35) --
Distributions from net realized gains (1.04) (1.88) --
------------ ---------- ------------
Total distributions (1.38) (2.23) --
------------ ---------- ------------
Net asset value, end of year 19.39 16.04 16.71
============ ========== ============
TOTAL RETURN/2/ 31.61% 10.88% 8.79%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $ 207,679 $ 58,619 $ 7,623
Ratios to average net assets:
Expenses 1.83% 1.84% 1.82%/3/
Net investment income 1.92% 2.14% 1.37%/3/
Portfolio turnover rate 39.16% 22.05% 34.05%
Average commission rate paid/4/ $ .0010 $ .0130 --
</TABLE>
/1/ FOR THE PERIOD FROM MAY 1, 1995 (COMMENCEMENT OF SALES) THROUGH AUGUST 31,
1995.
/2/ TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS OR THE CONTINGENT DEFERRED
SALES CHARGE AND IS NOT ANNUALIZED.
/3/ ANNUALIZED.
/4/ RELATES TO PURCHASES AND SALES OF EQUITY SECURITIES. PRIOR TO FISCAL YEAR
END 1996 DISCLOSURE OF AVERAGE COMMISSION RATE WAS NOT REQUIRED.
HOW DOES THE FUND INVEST ITS ASSETS?
WHAT IS THE FUND'S GOAL?
The investment goal of the Fund is long-term capital growth. This goal is
fundamental which means that it may not be changed without shareholder approval.
WHAT KINDS OF SECURITIES DOES THE FUND PURCHASE?
The Fund tries to achieve its investment goal by a flexible policy of investing
in the equity and debt securities of companies and Under normal market
conditions, the Fund will invest at least 65% of its total assets in issuers
located in at least three countries (including the U.S.).
EQUITY SECURITIES generally entitle the holder to participate in a company's
general operating results. These include common stock; preferred stock;
convertible securities; warrants or rights. The Fund's primary investments are
in common stock.
In selecting these equity securities, Global Advisors does a company-by- company
analysis, rather than focusing on a specific industry or economic sector. Global
Advisors concentrates primarily on the market price of a company's securities
relative to its view regarding the company's long-term earnings potential. A
company's historical value measures, including price/earnings ratios, profit
margins and liquidation value, will also be considered.
DEBT SECURITIES represent an obligation of the issuer to repay a loan of money
to it, and generally, provide for the payment of interest. These include bonds,
notes and debentures; commercial paper; time deposits; bankers' acceptances; and
structured investments which are described more fully in the SAI.
The Fund may buy both rated and unrated debt securities. Independent rating
organizations rate debt securities based upon their assessment of the financial
soundness of the issuer. Generally, a lower rating indicates higher risk. The
Fund may buy debt securities which are rated Caa by Moody's or CCC by S&P or
better; or unrated debt which it determines to be of comparable quality. At
present, the Fund does not intend to invest more than 5% of its total assets in
non-investment grade securities (rated lower than BBB by S&P or Baa by Moody's).
Please see the SAI for more details on the risks associated with lower-rated
securities.
DEPOSITARY RECEIPTS. The Fund may also invest in American, European and Global
Depositary Receipts. Depositary Receipts are certificates typically issued by a
bank or trust company that give their holders the right to receive securities
issued by a foreign or domestic corporation.
GENERAL. The Fund may invest without percentage limitation in domestic or
foreign securities. The Fund may invest up to 5% of its total assets in
securities issued by any one company or foreign government. The Fund may invest
any amount of its assets in U.S. government securities. The Fund may invest in
any industry although it will not concentrate (invest more than 25% of its total
assets) in any one industry. The Fund may invest up to 15% of its total assets
in foreign securities that are not listed on a recognized U.S. or foreign
securities exchange, including up to 10% of its total assets in securities with
a limited trading market.
Please see the SAI for more details on the types of securities in which the Fund
invests.
WHAT ARE SOME OF THE FUND'S OTHER INVESTMENT STRATEGIES AND PRACTICES?
TEMPORARY INVESTMENTS. When Global Advisors believes that the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist, it may invest the Fund's
portfolio in a temporary defensive manner. Under such circumstances, the Fund
may invest up to 100% of its assets in: (1) U.S. government securities; (2) bank
time deposits denominated in the currency of any major nation; (3) commercial
paper rated A-1 by S&P or Prime-1 by Moody's or, if unrated, issued by a company
which, at the date of investment, had an outstanding debt issue rated AAA or AA
by S&P or Aaa or Aa by Moody's; and (4) repurchase agreements with banks and
broker-dealers.
REPURCHASE AGREEMENTS. The Fund will generally have a portion of its assets in
cash or cash equivalents for a variety of reasons including waiting for a
special investment opportunity or taking a defensive position. To earn income on
this portion of its assets, the Fund may enter into repurchase agreements with
certain banks and broker-dealers. Under a repurchase agreement, the Fund agrees
to buy a U.S. government security from one of these issuers and then to sell the
security back to the issuer after a short period of time (generally, less than
seven days) at a higher price. The bank or broker-dealer must transfer to the
Fund's custodian securities with an initial value of at least 102% of the dollar
amount invested by the Fund in each repurchase agreement.
OPTIONS ON SECURITIES INDICES. The Fund may buy and sell options on securities
indices to earn additional income and/or to help protect its portfolio against
market and/or exchange rate movements, although it presently has no intention of
doing so. An option on a securities index is a contract that allows the buyer of
the option the right to receive from the seller cash, in an amount equal to the
difference between the index's closing price and the option's exercise price.
The Fund may only buy options if the total premiums it paid for such options is
5% or less of its total assets.
STOCK INDEX FUTURES CONTRACTS. Changes in interest rates, securities prices or
foreign currency valuations may affect the value of the Fund's investments. To
reduce its exposure to these factors, the Fund may buy and sell stock index
futures contracts. A stock index futures contract is an agreement to take or
make delivery of an amount of cash based on the difference between the value of
index at the beginning and end of the contract period. Although the Fund may
invest up to 20% of its total assets in stock index futures contracts, it
presently has no intention of entering into these transactions.
SECURITIES LENDING. To generate additional income, the Fund may lend its
portfolio securities to qualified securities dealers or other institutional
investors. Such loans may not exceed 33 1/3% of the value of the Fund's total
assets measured at the time of the most recent loan. For each loan the Fund must
receive in return collateral with a value at least equal to 100% of the current
market value of the loaned securities.
SHORT-TERM TRADING AND PORTFOLIO TURNOVER. The Fund invests for long-term
capital growth and does not intend to emphasize short-term trading profits. It
is anticipated, therefore, that the Fund's annual portfolio turnover rate
generally will be below 50%; although this rate may be higher or lower, in
relation to market conditions. A portfolio turnover rate of less than 50% means
that in a one year period, less than one-half of the Fund's portfolio is
changed.
OTHER POLICIES AND RESTRICTIONS. The Fund has a number of additional investment
restrictions that govern its activities. Some of these restrictions may only be
changed with shareholder approval and some may be changed by the Board alone.
For a list of these restrictions and more information about the Fund's
investment policies, including those described above, and their associated
risks, please see "How Do the Funds Invest Their Assets?" and "Investment
Restrictions" in the SAI.
The policies and restrictions discussed in this prospectus and in the SAI are
applied at the time the Fund makes an investment. The Fund is generally not
required to sell a security because of a change in circumstances.
WHAT ARE THE RISKS OF INVESTING IN THE FUND?
GENERAL RISK. There is no assurance that the Fund's investment goal will be met.
The Fund will seek to spread investment risk by diversifying its investments but
the possibility of losses remains. Generally, if the securities owned by the
Fund increase in value, the value of the shares of the Fund which you own will
increase. Similarly, if the securities owned by the Fund decrease in value, the
value of your shares will also decline. In this way, you participate in any
change in the value of the securities owned by the Fund.
FOREIGN SECURITIES RISK. The value of foreign (and U.S.) securities is affected
by general economic conditions and individual company and industry earnings
prospects. While foreign securities may offer significant opportunities for
gain, they also involve additional risks that can increase the potential for
losses in the Fund. These risks can be significantly greater for investments in
emerging markets. Investments in Depositary Receipts also involve some or all of
the risks described below.
The political, economic and social structures of some countries in which the
Fund invests may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the imposition
of exchange controls, expropriation, restrictions on removal of currency or
other assets, nationalization of assets, and punitive taxes.
There may be less publicly available information about a foreign company or
government than about a U.S. company or public entity. Certain countries'
financial markets and services are less developed than those in the U.S. or
other major economies. As a result, they may not have uniform accounting,
auditing and financial reporting standards and may have less government
supervision of financial markets. Foreign securities markets may have
substantially lower trading volumes than U.S. markets, resulting in less
liquidity and more volatility than experienced in the U.S. Transaction costs on
foreign securities markets are generally higher than in the U.S. The settlement
practices may be cumbersome and result in delays that may affect portfolio
liquidity. The Fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies and obtaining judgments with respect
to foreign investments in foreign courts than with respect to domestic issuers
in U.S. courts.
Some of the countries in which the Fund may invest such as Russia and certain
Asian and Eastern European countries are considered developing or emerging
markets. Investments in these markets are subject to all of the risks of foreign
investing generally, and have additional and heightened risks due to a lack of
legal, business and social frameworks to support securities markets.
Emerging markets involve additional significant risks, including political and
social uncertainty (for example, regional conflicts and risk of war), currency
exchange rate volatility, pervasiveness of corruption and crime, delays in
settling portfolio transactions and risk of loss arising out of the system of
share registration and custody. The Fund may invest up to 100% of its total
assets in emerging markets, including up to 5% of its total assets in Russian
securities. For more information on the risks associated with emerging markets
securities, please see the SAI.
On July 1, 1997, Hong Kong reverted to the sovereignty of China. As with any
major political transfer of power, this could result in political, social,
economic, market or other developments in Hong Kong, China or other countries
that could affect the value of Fund investments.
MARKET, CURRENCY, AND INTEREST RATE RISK. General market movements in any
country where the Fund has investments are likely to affect the value of the
securities which the Fund owns in that country and the Fund's share price may
also be affected. The Fund's investments may be denominated in foreign
currencies so that changes in foreign currency exchange rates will also affect
the value of what the Fund owns, and thus the price of its shares. To the extent
the Fund invests in debt securities, changes in interest rates in any country
where the Fund is invested will affect the value of the Fund's portfolio and,
consequently, its share price. Rising interest rates, which often occur during
times of inflation or a growing economy, are likely to cause the face value of a
debt security to decrease, having a negative effect on the value of the Fund's
shares. Of course, individual and worldwide stock markets, interest rates and
currency valuations have both increased and decreased, sometimes very
dramatically, in the past. These changes are likely to occur again in the future
at unpredictable times.
CREDIT AND ISSUER RISK. The Fund's investments in debt securities involve credit
risk. This is the risk that the issuer of a debt security will be unable to make
principal and interest payments in a timely manner and the debt security will go
into default. The Fund may invest up to 10% of its total assets in defaulted
debt securities. The purchase of defaulted bonds involves significant additional
risks, such as the possibility of complete loss of the investment in the event
the issuer does not restructure or reorganize to enable it to resume paying
interest and principal to holders.
DERIVATIVE SECURITIES RISK. Derivative investments are those whose values are
dependent upon the performance of one or more other securities or investments or
indices; in contrast to common stock, for example, whose value is dependent upon
the operations of the issuer. Options on securities indices and stock index
futures contracts are considered derivative investments. To the extent the Fund
enters into these transactions, their success will depend upon Global Advisors'
ability to predict pertinent market movements.
WHO MANAGES THE FUND?
THE BOARD. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations. The
Board also monitors the Fund to ensure no material conflicts exist among the
Fund's classes of shares. While none is expected, the Board will act
appropriately to resolve any material conflict that may arise.
INVESTMENT MANAGER. Global Advisors manages the Fund's assets and makes its
investment decisions. Global Advisors also performs similar services for other
funds. It is wholly owned by Resources, a publicly owned company engaged in the
financial services industry through its subsidiaries. Charles B. Johnson and
Rupert H. Johnson, Jr. are the principal shareholders of Resources. Together,
Global Advisors and its affiliates manage over $223 billion in assets. The
Templeton organization has been investing globally since 1940. Global Advisors
and its affiliates have offices in Argentina, Australia, Bahamas, Canada,
France, Germany, Hong Kong, India, Italy, Japan, Korea, Luxembourg, Poland,
Russia, Singapore, South Africa, Taiwan, United Kingdom, U.S., and Vietnam.
Please see "Investment Management and Other Services" and "Miscellaneous
Information" in the SAI for information on securities transactions and a summary
of the Fund's Code of Ethics.
PORTFOLIO MANAGEMENT. The Fund's lead portfolio manager since 1996 is Jeffrey A.
Everett. Mr. Everett is an executive vice president of Global Advisors. He holds
a BS in finance from Pennsylvania State University and is also a Chartered
Financial Analyst. Prior to joining the Templeton organization in 1989, Mr.
Everett was an investment officer at First Pennsylvania Investment Research, a
division of First Pennsylvania Corporation, where he analyzed equity and
convertible securities. He also coordinated research for Centre Square
Investment Group, the pension management subsidiary of First Pennsylvania
Corporation. Mr. Everett is responsible for managing several offshore accounts
at Templeton, as well as several Templeton funds. His global research
responsibilities encompass industry coverage for real estate and country
responsibilities for Italy and Australia.
Mark G. Holowesko and Richard Sean Farrington have secondary portfolio
management responsibilities for the Fund. Mr. Holowesko is president of Global
Advisors. He holds a BA in economics from Holy Cross College and an MBA from
Babson College. He is a Chartered Financial Analyst, Chartered Investment
Counselor, and a founding member of the International Society of Financial
Analysts. Prior to joining the Templeton organization in 1985, Mr. Holowesko
worked with RoyWest Trust Corporation (Bahamas) Limited as an investment
analyst. His duties at RoyWest included managing trust and individual accounts,
as well as equity market research worldwide. Mr. Holowesko is responsible for
coordinating equity research and portfolio management activities worldwide for
the Templeton Global Equity Group and managing several mutual funds. Mr.
Farrington is a vice president of Global Advisors. He holds a BA in economics
from Harvard University. Mr. Farrington is a Chartered Financial Analyst. He has
served as the president of the Bahamas Society of Financial Analysts and is
currently on the board of the International Society of Financial Analysts. He
joined the Templeton organization in 1991 and is a research analyst and
portfolio manager. Mr. Farrington's research responsibilities include global
coverage of electrical equipment industries, as well as international electric
utilities. He is also responsible for country coverage of Hong Kong, China and
Taiwan.
MANAGEMENT FEES. During the fiscal year ended August 31, 1997, management fees
totaling 0.61% of the average daily net assets of the Fund were paid to Global
Advisors. Total expenses, including fees paid to Global Advisors were 1.03% of
the average daily net assets of the Fund for Class I and 1.83% for Class II.
PORTFOLIO TRANSACTIONS. Global Advisors tries to obtain the best execution on
all transactions. If Global Advisors believes more than one broker or dealer can
provide the best execution, it may consider research and related services and
the sale of Fund shares, as well as shares of other funds in the Franklin
Templeton Group of Funds, when selecting a broker or dealer. Please see "How Do
the Funds Buy Securities for Their Portfolios?" in the SAI for more information.
ADMINISTRATIVE SERVICES. Since October 1, 1996, FT Services has provided certain
administrative services and facilities for the Fund. Prior to that date,
Templeton Global Investors, Inc. provided the same services to the Fund. During
the fiscal year ended August 31, 1997, administration fees totaled 0.08% of the
average daily net assets of the Fund. These fees are included in the amount of
total expenses shown above. Please see "Investment Management and Other
Services" in the SAI for more information.
THE RULE 12B-1 PLANS
Class I and Class II have separate distribution plans or "Rule 12b-1 Plans"
under which they may pay or reimburse Distributors or others for the expenses of
activities that are primarily intended to sell shares of the class. These
expenses may include, among others, distribution or service fees paid to
Securities Dealers or others who have executed a servicing agreement with the
Fund, Distributors or its affiliates; a prorated portion of Distributors'
overhead expenses; and the expenses of printing prospectuses and reports used
for sales purposes, and preparing and distributing sales literature and
advertisements.
Payments by the Fund under the Class I plan may not exceed 0.25% per year of
Class I's average daily net assets. Expenses not reimbursed in any quarter may
be reimbursed in future quarters or years. This includes expenses not reimbursed
because they exceeded the applicable limit under the plan. As of August 31,
1997, there were no unreimbursed expenses under the Class I plan. During the
first year after certain Class I purchases made without a sales charge,
Distributors may keep the Rule 12b-1 fees associated with the purchase.
Under the Class II plan, the Fund may pay Distributors up to 0.75% per year of
Class II's average daily net assets to pay Distributors or others for providing
distribution and related services and bearing certain Class II expenses. All
distribution expenses over this amount will be borne by those who have incurred
them. During the first year after a purchase of Class II shares, Distributors
may keep this portion of the Rule 12b-1 fees associated with the purchase.
The Fund may also pay a servicing fee of up to 0.25% per year of Class II's
average daily net assets under the Class II plan. This fee may be used to pay
Securities Dealers or others for, among other things, helping to establish and
maintain customer accounts and records, helping with requests to buy and sell
shares, receiving and answering correspondence, monitoring dividend payments
from the Fund on behalf of customers, and similar servicing and account
maintenance activities.
The Rule 12b-1 fees charged to each class are based only on the fees
attributable to that particular class. For more information, please see "The
Funds' Underwriter" in the SAI.
<PAGE>
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, each class of the Fund advertises its performance. A commonly
used measure of performance is total return. Performance figures are usually
calculated using the maximum sales charges, but certain figures may not include
sales charges.
Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested.
The investment results of each class will vary. Performance figures are always
based on past performance and do not guarantee future results. For a more
detailed description of how the Fund calculates its performance figures, please
see "How Do the Funds Measure Performance?" in the SAI.
HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
ON AUGUST 5, 1997, PRESIDENT CLINTON SIGNED INTO LAW THE TAXPAYER RELIEF ACT OF
1997 (THE "1997 ACT"). THIS NEW LAW MAKES SWEEPING CHANGES IN THE CODE. BECAUSE
MANY OF THESE CHANGES ARE COMPLEX, THEY ARE DISCUSSED IN THE SAI.
TAXATION OF THE FUND'S INVESTMENTS. The Fund invests your money in the stocks,
bonds and other securities that are described in the section "How Does the Fund
Invest Its Assets?" Special tax rules may apply in determining the income and
gains the Fund earns on its investments. These rules may, in turn, affect the
amount of distributions that the Fund pays to you. These special tax rules are
discussed in the SAI.
TAXATION OF THE FUND. As a regulated investment company, the Fund generally pays
no federal income tax on the income and gains that it distributes to you.
HOW DOES THE FUND EARN INCOME AND GAINS?
The Fund earns dividends and interest (the Fund's "income") on its investments.
When the Fund sells a security for a price that is higher than it paid, it has a
gain. When the Fund sells a security for a price that is lower than it paid, it
has a loss. If the Fund has held the security for more than one year, the gain
or loss will be a long-term capital gain or loss. If the Fund has held the
security for one year or less, the gain or loss will be a short-term capital
gain or loss. The Fund's gains and losses are netted together, and, if the Fund
has a net gain (the Fund's "gains"), that gain will generally be distributed to
you.
FOREIGN TAXES. Foreign governments may impose taxes on the income and gains from
the Fund's investments in foreign stocks and bonds. These taxes will reduce the
amount of the Fund's distributions to you. The Fund may also invest in the
securities of foreign companies that are "passive foreign investment companies"
("PFICs"). These investments in PFICs may cause the Fund to pay income taxes and
interest charges. If possible, the Fund will not invest in PFICs or will adopt
other strategies to avoid these taxes and charges.
TAXATION OF SHAREHOLDERS
DISTRIBUTIONS. Distributions from the Fund, whether you receive them in cash or
in additional shares, are generally subject to income tax. The Fund will send
you a statement in January of the current year showing the ordinary dividends,
capital gain distributions and non-taxable distributions you received from the
Fund in the prior year. The amounts on this statement will include distributions
declared in December of the prior year, and paid to you in January of the
current year. These distributions are taxable as if you had received them on
December 31 of the prior year. The IRS requires you to report these amounts on
your income tax return for the prior year.
The Fund's statement for the prior year will tell you how much of your capital
gain distribution represents 28% rate gain, or 25% rate gain, if applicable. The
remainder of the capital gain distribution, after subtracting out these amounts,
represents 20% rate gain.
WHAT IS A DISTRIBUTION?
As a shareholder, you will receive your share of the Fund's income and gains on
its investments in stocks, bonds and other securities. The Fund's income and
short-term capital gains are paid to you as ordinary dividends. The Fund's
long-term capital gains are paid to you as capital gain distributions. If the
Fund pays you an amount in excess of its income and gains, this excess will
generally be treated as a non-taxable distribution. These amounts, taken
together, are what we call the Fund's distributions to you.
DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your qualified
retirement plan, such as a Section 401(k) plan or IRA, are generally
tax-deferred; this means that you are not required to report Fund distributions
on your income tax return when paid to your plan, but, rather, when your plan
makes payments to you.
DIVIDENDS-RECEIVED DEDUCTION. Corporate investors may be entitled to a
dividends-received deduction on a portion of the ordinary dividends received
from the Fund.
REDEMPTIONS AND EXCHANGES. If you redeem your shares or if you exchange your
shares in the Fund for shares in another Franklin Templeton Fund, you will
generally have a gain or loss that the IRS requires you to report on your income
tax return. If you exchange Fund shares held for 90 days or less and pay no
sales charge or a reduced sales charge for the new shares, all or a portion of
the sales charge you paid on the purchase of the shares you exchanged is not
included in their cost for purposes of computing gain or loss on the exchange.
If you hold your shares for six months or less, any loss you have will be
treated as a long-term capital loss to the extent of any capital gains
distributions received by you from the Fund. All or a portion of any loss on the
redemption or exchange of your shares will be disallowed by the IRS if you
purchase other shares in the Fund within 30 days before or after your redemption
or exchange.
WHAT IS A REDEMPTION?
A redemption is a sale by you to the Fund of some or all of your shares in the
Fund. The price per share you receive when you redeem Fund shares may be more or
less than the price at which you purchased those shares. An exchange of shares
in the Fund for shares of another Franklin Templeton Fund is treated as a
redemption of Fund shares and then a purchase of shares of the other Fund. When
you redeem or exchange your shares, you will generally have a gain or loss,
depending upon whether the basis in your shares is more or less than your cost
or other basis in the shares. Call Fund Information at 1-800-342-5236 for a free
Shareholder Tax Information Handbook if you need more information in calculating
the gain or loss on the redemption or exchange of your shares.
FOREIGN TAXES. If more than 50% of the value of the Fund's assets consists of
foreign securities, the Fund may elect to pass-through to you the amount of
foreign taxes it paid. If the Fund makes this election, your year-end statement
will show more taxable income than was actually distributed to you. However, you
will be entitled to either deduct your share of such taxes in computing your
taxable income or claim a foreign tax credit for such taxes against your U.S.
federal income tax. Your year-end statement, showing the amount of deduction or
credit available to you, will be distributed to you in January along with other
shareholder information records including your Fund Form 1099-DIV.
The 1997 Act included a provision that allows you to claim these credits
directly on your income tax return (Form 1040) and eliminates the previous
requirement that you complete a detailed supporting form. To qualify, you must
have $600 or less in joint return foreign taxes ($300 or less on a single
return), all of which are reported to you on IRS Form 1099-DIV. THIS SIMPLIFIED
PROCEDURE APPLIES ONLY FOR CALENDAR YEARS 1998 AND BEYOND, AND IS NOT AVAILABLE
IN 1997.
WHAT IS A FOREIGN TAX CREDIT?
A foreign tax credit is a tax credit for the amount of taxes imposed by a
foreign country on earnings of the Fund. When a foreign company in which the
Fund invests pays a dividend to the Fund, the dividend will generally be subject
to a withholding tax. The taxes withheld in foreign countries create credits
that you may use to offset your U.S. federal income tax.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S. income
tax withholding. Your home country may also tax ordinary dividends, capital gain
distributions and gains arising from redemptions or exchanges of your Fund
shares. Fund shares held by the estate of a non-U.S. investor may be subject to
U.S. estate tax. You may wish to contact your tax advisor to determine the U.S.
and non-U.S. tax consequences of your investment in the Fund.
STATE TAXES. Ordinary dividends and capital gain distributions that you receive
from the Fund as well as gains arising from redemptions or exchanges of your
Fund shares will generally be subject to state and local income tax. The holding
of Fund shares may also be subject to state and local intangibles taxes. You may
wish to contact your tax advisor to determine the state and local tax
consequences of your investment in the Fund.
BACKUP WITHHOLDING. When you open an account, IRS regulations require that you
provide your taxpayer identification number ("TIN"), certify that it is correct,
and certify that you are not subject to backup withholding under IRS rules. If
you fail to provide a correct TIN or the proper tax certifications, the Fund is
required to withhold 31% of all the distributions (including ordinary dividends
and capital gain distributions) and redemption proceeds paid to you. The Fund is
also required to begin backup withholding on your account if the IRS instructs
the Fund to do so. The Fund reserves the right not to open your account or,
alternatively, to redeem your shares at the current net asset value, less any
taxes withheld, if you fail to provide a correct TIN, fail to provide the proper
tax certifications, or the IRS instructs the Fund to begin backup withholding on
your account.
WHAT IS A BACKUP WITHHOLDING?
Backup withholding occurs when the Fund is required to withhold and pay over to
the IRS 31% of your distributions and redemption proceeds. You can avoid backup
withholding by providing the Fund with your TIN, and by completing the tax
certifications on your account application that you were asked to sign when you
opened your account. However, if the IRS instructs the Fund to begin backup
withholding, it is required to do so even if you provided the Fund with your TIN
and these tax certifications, and backup withholding will remain in place until
the Fund is instructed by the IRS that it is no longer required.
THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE FUND. A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS IS CONTAINED IN THE SECTION
ENTITLED "ADDITIONAL INFORMATION ABOUT DISTRIBUTIONS AND TAXES" IN THE SAI. THE
TAX TREATMENT OF DISTRIBUTIONS OF ORDINARY DIVIDENDS, CAPITAL GAIN
DISTRIBUTIONS, FOREIGN TAXES PAID, AND INCOME TAXES WITHHELD IS ALSO DISCUSSED
IN A FREE SHAREHOLDER TAX INFORMATION HANDBOOK, AVAILABLE FROM FUND INFORMATION
AT 1-800-342-5236.
PAGE
HOW IS THE FUND ORGANIZED?
The Fund is a diversified series of the Company, an open-end management
investment company, commonly called a mutual fund. The Company was organized as
a Maryland corporation on August 15, 1977, and is registered with the SEC. The
Fund offers two classes of shares: Templeton World Fund -- Class I and Templeton
World Fund -- Class II. All shares outstanding before the offering of Class II
shares are considered Class I shares. Additional series and classes of shares
may be offered in the future.
Shares of each class represent proportionate interests in the assets of the Fund
and have the same voting and other rights and preferences as any other class of
the Fund for matters that affect the Fund as a whole. For matters that only
affect one class, however, only shareholders of that class may vote. Each class
will vote separately on matters affecting only that class, or expressly required
to be voted on separately by state or federal law. Shares of each class of a
series have the same voting and other rights and preferences as the other
classes and series of the Company for matters that affect the Company as a
whole.
The Company has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Company does not intend to hold annual shareholder meetings. The Company or
a series of the Company may hold special meetings, however, for matters
requiring shareholder approval. A meeting may also be called by the Board in its
discretion or for the purpose of considering the removal of a Board member if
requested in writing to do so by shareholders holding at least 10% of the
outstanding shares. In certain circumstances, we are required to help you
communicate with other shareholders about the removal of a Board member.
<PAGE>
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
To open your account, contact your investment representative or complete and
sign the enclosed shareholder application and return it to the Fund with your
check. PLEASE INDICATE WHICH CLASS OF SHARES YOU WANT TO BUY. IF YOU DO NOT
SPECIFY A CLASS, YOUR PURCHASE WILL BE AUTOMATICALLY INVESTED IN CLASS I SHARES.
MINIMUM
INVESTMENTS*
---------------------- ---------------------
To Open Your Account. $ 100
To Add to Your
Account............ $ 25
*We may waive these minimums for retirement plans. We may also refuse any order
to buy shares.
CHOOSING A SHARE CLASS
Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. The class that may be best for
you depends on a number of factors, including the amount and length of time you
expect to invest. Generally, Class I shares may be more attractive for long-term
investors or investors who qualify to buy Class I shares at a reduced sales
charge. Your financial representative can help you decide.
CLASS I
o Higher front-end sales charges than Class II shares. There are several ways to
reduce these charges, as described below. There is no front-end sales charge for
purchases of $1 million or more.*
o Contingent Deferred Sales Charge on purchases of $1 million or more sold
within one year
o Lower annual expenses than Class II shares
CLASS II
o Lower front-end sales charges than Class I shares
o Contingent Deferred Sales Charge on purchases sold within 18 months
o Higher annual expenses than Class I shares
*If you are investing $1 million or more, it is generally more beneficial for
you to buy Class I shares because there is no front-end sales charge and the
annual expenses are lower. Therefore, ANY PURCHASE OF $1 MILLION OR MORE IS
AUTOMATICALLY INVESTED IN CLASS I SHARES. You may accumulate more than $1
million in Class II shares through purchases over time. If you plan to do this,
however, you should determine if it would be better for you to buy Class I
shares through a Letter of Intent.
PURCHASE PRICE OF FUND SHARES
For Class I shares, the sales charge you pay depends on the dollar amount you
invest, as shown in the table below. The sales charge for Class II shares is 1%
and, unlike Class I, does not vary based on the size of your purchase.
<PAGE>
<TABLE>
<CAPTION>
TOTAL SALES CHARGE AMOUNT PAID
AS A PERCENTAGE OF TO DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
----------------------------------- --------------------- -------------------- --------------------
<S> <C> <C> <C>
CLASS I
Under $50,000..................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000.... 4.50% 4.71% 3.75%
$100,000 but less than $250,000... 3.50% 3.63% 2.80%
$250,000 but less than $500,000... 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000 2.00% 2.04% 1.60%
$1,000,000 or more*............... None None None
CLASS II
Under $1,000,000*................. 1.00% 1.01% 1.00%
</TABLE>
*A Contingent Deferred Sales Charge of 1% may apply to Class I purchases of $1
million or more and any Class II purchase. Please see "How Do I Sell Shares? --
Contingent Deferred Sales Charge." Please also see "Other Payments to Securities
Dealers" below for a discussion of payments Distributors may make out of its own
resources to Securities Dealers for certain purchases. Purchases of Class II
shares are limited to purchases below $1 million. Please see "Choosing a Share
Class."
SALES CHARGE REDUCTIONS AND WAIVERS
IF YOU QUALIFY TO BUY SHARES UNDER ONE OF THE SALES CHARGE REDUCTION OR
WAIVER CATEGORIES DESCRIBED BELOW, PLEASE INCLUDE A WRITTEN STATEMENT WITH EACH
PURCHASE ORDER EXPLAINING WHICH PRIVILEGE APPLIES. If you don't include this
statement, we cannot guarantee that you will receive the sales charge reduction
or waiver.
CUMULATIVE QUANTITY DISCOUNTS -- CLASS I ONLY. To determine if you may pay a
reduced sales charge, the amount of your current Class I purchase is added to
the cost or current value, whichever is higher, of your existing shares in the
Franklin Templeton Funds, as well as those of your spouse, children under the
age of 21 and grandchildren under the age of 21. If you are the sole owner of a
company, you may also add any company accounts, including retirement plan
accounts. Companies with one or more retirement plans may add together the total
plan assets invested in the Franklin Templeton Funds to determine the sales
charge that applies.
LETTER OF INTENT -- CLASS I ONLY. You may buy Class I shares at a reduced sales
charge by completing the Letter of Intent section of the shareholder
application. A Letter of Intent is a commitment by you to invest a specified
dollar amount during a 13 month period. The amount you agree to invest
determines the sales charge you pay on Class I shares.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:
o You authorize Distributors to reserve 5% of your total intended purchase in
Class I shares registered in your name until you fulfill your Letter.
o You give Distributors a security interest in the reserved shares and appoint
Distributors as attorney-in-fact.
o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.
o Although you may exchange your shares, you may not sell reserved shares until
you complete the Letter or pay the higher sales charge.
Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on the
reserved shares as you direct. Our policy of reserving shares does not apply to
certain retirement plans.
If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy, Sell and Exchange Shares? -- Letter of Intent" in the SAI or
call Shareholder Services.
GROUP PURCHASES -- CLASS I ONLY. If you are a member of a qualified group, you
may buy Class I shares at a reduced sales charge that applies to the group as a
whole. The sales charge is based on the combined dollar value of the group
members' existing investments, plus the amount of the current purchase.
A qualified group is one that:
o Was formed at least six months ago,
o Has a purpose other than buying Fund shares at a discount,
o Has more than 10 members,
o Can arrange for meetings between our representatives and group members,
o Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to Distributors,
o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and
o Meets other uniform criteria that allow Distributors to achieve cost savings
in distributing shares.
SALES CHARGE WAIVERS. If one of the following sales charge waivers applies to
you or your purchase of Fund shares, you may buy shares of the Fund without a
front-end sales charge or a Contingent Deferred Sales Charge. All of the sales
charge waivers listed below apply to purchases of Class I shares only, except
for items 1 and 2 which also apply to Class II purchases.
Certain distributions, payments or redemption proceeds that you receive may be
used to buy shares of the Fund without a sales charge if you reinvest them
within 365 days of their payment or redemption date. They include:
1. Dividend and capital gain distributions from any Franklin Templeton Fund.
The distributions generally must be reinvested in the SAME CLASS of shares.
Certain exceptions apply, however, to Class II shareholders who chose to
reinvest their distributions in Class I shares of the Fund before November
17, 1997, and to Advisor Class or Class Z shareholders of a Franklin
Templeton Fund who may reinvest their distributions in Class I shares of
the Fund.
2. Redemption proceeds from the sale of shares of any Franklin Templeton Fund
if you originally paid a sales charge on the shares and you reinvest the
money in the SAME CLASS of shares. This waiver does not apply to exchanges.
If you paid a Contingent Deferred Sales Charge when you redeemed your
shares from a Franklin Templeton Fund, a Contingent Deferred Sales Charge
will apply to your purchase of Fund shares and a new Contingency Period
will begin. We will, however, credit your Fund account with additional
shares based on the Contingent Deferred Sales Charge you paid and the
amount of redemption proceeds that you reinvest.
If you immediately placed your redemption proceeds in a Franklin Bank CD,
you may reinvest them as described above. The proceeds must be reinvested
within 365 days from the date the CD matures, including any rollover.
3. Dividend or capital gain distributions from a real estate investment trust
(REIT) sponsored or advised by Franklin Properties, Inc.
4. Annuity payments received under either an annuity option or from death
benefit proceeds, only if the annuity contract offers as an investment
option the Franklin Valuemark Funds, the Templeton Variable Annuity Fund or
the Templeton Variable Products Series Fund. You should contact your tax
advisor for information on any tax consequences that may apply.
5. Distributions from an existing retirement plan invested in the Franklin
Templeton Funds.
6. Redemption proceeds from the sale of Class A shares of any of the Templeton
Global Strategy Funds if you are a qualified investor.
If you paid a contingent deferred sales charge when you redeemed your Class
A shares from a Templeton Global Strategy Fund, a Contingent Deferred Sales
Charge will apply to your purchase of Fund shares and a new Contingency
Period will begin. We will, however, credit your Fund account with
additional shares based on the contingent deferred sales charge you paid
and the amount of the redemption proceeds that you reinvest.
If you immediately placed your redemption proceeds in a Franklin Templeton
money fund, you may reinvest them as described above. The proceeds must be
reinvested within 365 days from the date they are redeemed from the money
fund.
Various individuals and institutions also may buy Class I shares without a
front-end sales charge or Contingent Deferred Sales Charge, including:
1. Trust companies and bank trust departments agreeing to invest in Franklin
Templeton Funds over a 13 month period at least $1 million of assets held
in a fiduciary, agency, advisory, custodial or similar capacity and over
which the trust companies and bank trust departments or other plan
fiduciaries or participants, in the case of certain retirement plans, have
full or shared investment discretion. We will accept orders for these
accounts by mail accompanied by a check or by telephone or other means of
electronic data transfer directly from the bank or trust company, with
payment by federal funds received by the close of business on the next
business day following the order.
2. An Eligible Governmental Authority. Please consult your legal and investment
advisors to determine if an investment in the Fund is permissible and suitable
for you and the effect, if any, of payments by the Fund on arbitrage rebate
calculations.
3. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs
4. Registered Securities Dealers and their affiliates, for their investment
accounts only
5. Current employees of Securities Dealers and their affiliates and their family
members, as allowed by the internal policies of their employer
6. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies
7. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
8. Accounts managed by the Franklin Templeton Group
9. Certain unit investment trusts and their holders reinvesting distributions
from the trusts
10. Group annuity separate accounts offered to retirement plans
11. Chilean retirement plans that meet the requirements described under
"Retirement Plans" below
RETIREMENT PLANS. Retirement plans that (i) are sponsored by an employer with at
least 100 employees, or (ii) have plan assets of $1 million or more, or (iii)
agree to invest at least $500,000 in the Franklin Templeton Funds over a 13
month period may buy Class I shares without a front-end sales charge. Retirement
plans that are not Qualified Retirement Plans or SEPs, such as 403(b) or 457
plans, must also meet the requirements described under "Group Purchases -- Class
I Only" above to be able to buy Class I shares without a front-end sales charge.
For retirement plan accounts opened on or after May 1, 1997, a Contingent
Deferred Sales Charge may apply if the account is closed within 365 days of the
retirement plan account's initial purchase in the Franklin Templeton Funds.
Please see "How Do I Sell Shares? -- Contingent Deferred Sales Charge" for
details.
Any retirement plan that does not meet the requirements to buy Class I shares
without a front-end sales charge and that was a shareholder of the Fund on or
before February 1, 1995, may buy shares of the Fund subject to a maximum sales
charge of 4% of the Offering Price, 3.2% of which will be retained by Securities
Dealers.
HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?
Your individual or employer-sponsored retirement plan may invest in the Fund.
Plan documents are required for all retirement plans. Trust Company can provide
the plan documents for you and serve as custodian or trustee.
Trust Company can provide you with brochures containing important information
about its plans. To establish a Trust Company retirement plan, you will need an
application other than the one included in this prospectus. For a retirement
plan brochure or application, call Retirement Plan Services.
Please consult your legal, tax or retirement plan specialist before choosing a
retirement plan. Your investment representative or advisor can help you make
investment decisions within your plan.
OTHER PAYMENTS TO SECURITIES DEALERS
The payments described below may be made to Securities Dealers who initiate and
are responsible for Class II purchases and certain Class I purchases made
without a sales charge. The payments are subject to the sole discretion of
Distributors, and are paid by Distributors or one of its affiliates and not by
the Fund or its shareholders.
1. Class II purchases -- up to 1% of the purchase price.
2. Class I purchases of $1 million or more-- up to 1% of the amount invested.
3. Class I purchases made without a front-end sales charge by certain
retirement plans described under "Sales Charge Reductions and Waivers --
Retirement Plans" above -- up to 1% of the amount invested.
4. Class I purchases by trust companies and bank trust departments, Eligible
Governmental Authorities, and broker-dealers or others on behalf of clients
participating in comprehensive fee programs -- up to 0.25% of the amount
invested.
5. Class I purchases by Chilean retirement plans -- up to 1% of the amount
invested.
A Securities Dealer may receive only one of these payments for each qualifying
purchase. Securities Dealers who receive payments in connection with investments
described in paragraphs 1, 2 or 5 above or a payment of up to 1% for investments
described in paragraph 3 will be eligible to receive the Rule 12b-1 fee
associated with the purchase starting in the thirteenth calendar month after the
purchase.
FOR BREAKPOINTS THAT MAY APPLY AND INFORMATION ON ADDITIONAL COMPENSATION
PAYABLE TO SECURITIES DEALERS IN CONNECTION WITH THE SALE OF FUND SHARES, PLEASE
SEE "HOW DO I BUY, SELL AND EXCHANGE SHARES? -- OTHER PAYMENTS TO SECURITIES
DEALERS" IN THE SAI.
FOR INVESTORS OUTSIDE THE U.S.
The distribution of this prospectus and the offering of Fund shares may be
limited in many jurisdictions. An investor who wishes to buy shares of the Fund
should determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to obtain
information on the rules applicable to these transactions.
<PAGE>
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
If you own Class I shares, you may exchange into any of our money funds except
Franklin Templeton Money Fund II ("Money Fund II"). Money Fund II is the only
money fund exchange option available to Class II shareholders. Unlike our other
money funds, shares of Money Fund II may not be purchased directly and no drafts
(checks) may be written on Money Fund II accounts.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment objective
and policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have different
investment minimums. Some Franklin Templeton Funds do not offer Class II shares.
METHOD STEPS TO FOLLOW
- ----------------------------------- -------------------------------------
BY MAIL 1. Send us signed written instructions
2. Include any outstanding share
certificates for the shares you want to
exchange
- ----------------------------------- --------------------------------------
BY PHONE Call Shareholder Services or TeleFACTS(R)
If you do not want the ability to
exchange by phone to apply to
your account, please let us know
- ----------------------------------- --------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ----------------------------------- --------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You generally will not pay a front-end sales charge on exchanges. If you have
held your shares less than six months, however, you will pay the percentage
difference between the sales charge you previously paid and the applicable sales
charge of the new fund. If you have never paid a sales charge on your shares
because, for example, they have always been held in a money fund, you will pay
the Fund's applicable sales charge no matter how long you have held your shares.
These charges may not apply if you qualify to buy shares without a sales charge.
We will not impose a Contingent Deferred Sales Charge when you exchange shares.
Any shares subject to a Contingent Deferred Sales Charge at the time of
exchange, however, will remain so in the new fund. See the discussion on
Contingent Deferred Sales Charges below and under "How Do I Sell Shares?"
CONTINGENT DEFERRED SALES CHARGE -- CLASS I. For accounts with Class I shares
subject to a Contingent Deferred Sales Charge, shares are exchanged into the new
fund in the order they were purchased. If you exchange Class I shares into one
of our money funds, the time your shares are held in that fund will not count
towards the completion of any Contingency Period.
CONTINGENT DEFERRED SALES CHARGE -- CLASS II. For accounts with Class II shares
subject to a Contingent Deferred Sales Charge, shares are exchanged into the new
fund proportionately based on the amount of shares subject to a Contingent
Deferred Sales Charge and the length of time the shares have been held. For
example, suppose you own $1,000 in shares that have never been subject to a
Contingent Deferred Sales Charge, such as shares from the reinvestment of
dividends and capital gains ("free shares"), $2,000 in shares that are no longer
subject to a Contingent Deferred Sales Charge because you have held them for
longer than 18 months ("matured shares"), and $3,000 in shares that are still
subject to a Contingent Deferred Sales Charge ("CDSC liable shares"). If you
exchange $3,000 into a new fund, $500 will be exchanged from free shares, $1,000
from matured shares, and $1,500 from CDSC liable shares.
Likewise, CDSC liable shares purchased at different times will be exchanged into
a new fund proportionately. For example, assume you purchased $1,000 in shares 3
months ago, 6 months ago, and 9 months ago. If you exchange $1,500 into a new
fund, $500 will be exchanged from shares purchased at each of these three
different times.
While Class II shares are exchanged proportionately, they are redeemed in the
order purchased. In some cases, this means exchanged shares may be CDSC liable
even though they would not be subject to a Contingent Deferred Sales Charge if
they were sold. The tax consequences of a sale or exchange are determined by the
Code and not by the method used by the Fund to transfer shares.
If you exchange your Class II shares for shares of Money Fund II, the time your
shares are held in that fund will count towards the completion of any
Contingency Period.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the SAME CLASS, except as noted below.
o The accounts must be identically registered. You may, however, exchange shares
from a Fund account requiring two or more signatures into an identically
registered money fund account requiring only one signature for all transactions.
PLEASE NOTIFY US IN WRITING IF YOU DO NOT WANT THIS OPTION TO BE AVAILABLE ON
YOUR ACCOUNT. Additional procedures may apply. Please see "Transaction
Procedures and Special Requirements."
o Trust Company IRA or 403(b) retirement plan accounts may exchange shares as
described above. Restrictions may apply to other types of retirement plans.
Please contact Retirement Plan Services for information on exchanges within
these plans.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Your exchange may be restricted or refused if you have: (i) requested an
exchange out of the Fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the Fund more than twice in a calendar quarter,
or (iii) exchanged shares equal to at least $5 million, or more than 1% of
the Fund's net assets. Shares under common ownership or control are combined
for these limits. If you have exchanged shares as described in this
paragraph, you will be considered a Market Timer. Each exchange by a Market
Timer, if accepted, will be charged $5.00. Some of our funds do not allow
investments by Market Timers.
Because excessive trading can hurt Fund performance, operations and
shareholders, we may refuse any exchange purchase if (i) we believe the Fund
would be harmed or unable to invest effectively, or (ii) the Fund receives or
anticipates simultaneous orders that may significantly affect the Fund.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the Fund, such as "Advisor Class" or "Class Z" shares. Because the
Fund does not currently offer an Advisor Class, you may exchange Advisor Class
shares of any Franklin Templeton Fund for Class I shares of the Fund at Net
Asset Value. If you do so and you later decide you would like to exchange into a
fund that offers an Advisor Class, you may exchange your Class I shares for
Advisor Class shares of that fund. Certain shareholders of Class Z shares of
Franklin Mutual Series Fund Inc. may also exchange their Class Z shares for
Class I shares of the Fund at Net Asset Value.
<PAGE>
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
- --------------------- ------------------------------------------
BY MAIL 1. Send us signed written instructions.
If you would like your redemption
proceeds wired to a bank account,
your instructions should include:
o The name, address and telephone
number of the bank where you want
the proceeds sent
o Your bank account number
o The Federal Reserve ABA routing number
o If you are using a savings and
loan or credit union, the name of the
corresponding bank and the account number
2. Include any outstanding share certificates
for the shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts
may need to send additional documents.
Accounts under court jurisdiction may have
other requirements.
- ---------------------- -----------------------------------------
BY PHONE Call Shareholder Services. If you would like
your redemption proceeds wired to a bank
account, other than an escrow account, you
must first sign up for the wire feature. To
sign up, send us written instructions, with a
signature guarantee. To avoid any delay in
processing, the instructions should include
the items listed in "By Mail" above.
Telephone requests will be accepted:
o If the request is $50,000 or less.
Institutional accounts may exceed $50,000 by
completing a separate agreement. Call
Institutional Services to receive a copy.
o If there are no share certificates issued
for the shares you want to sell or you have
already returned them to the Fund
o Unless you are selling shares in a Trust
Company retirement plan account
o Unless the address on your account was
changed by phone within the last 15 days
If you do not want the ability to redeem
by phone to apply to your account, please let
us know.
- ---------------------- -----------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ---------------------- -----------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the registered
owners on the account, send us written instructions signed by all account
owners, with a signature guarantee. We are not able to receive or pay out cash
in the form of currency.
The wiring of redemption proceeds is a special service that we make available
whenever possible for redemption requests of $1,000 or more. If we receive your
request in proper form before 4:00 p.m. Eastern time, your wire payment will be
sent the next business day. For requests received in proper form after 4:00 p.m.
Eastern time, the payment will be sent the second business day. By offering this
service to you, the Fund is not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the Fund nor its agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire is not processed as described in this section.
If you sell shares you recently purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS
To comply with IRS regulations, you need to complete additional forms before
selling shares in a Trust Company retirement plan account. Tax penalties
generally apply to any distribution from these plans to a participant under age
59 1/2, unless the distribution meets an exception stated in the Code. To obtain
the necessary forms, please call Retirement Plan Services.
CONTINGENT DEFERRED SALES CHARGE
For Class I purchases, if you did not pay a front-end sales charge because you
invested $1 million or more or agreed to invest $1 million or more under a
Letter of Intent, a Contingent Deferred Sales Charge may apply if you sell all
or a part of your investment within the Contingency Period. Once you have
invested $1 million or more, any additional Class I investments you make without
a sales charge may also be subject to a Contingent Deferred Sales Charge if they
are sold within the Contingency Period. For any Class II purchase, a Contingent
Deferred Sales Charge may apply if you sell the shares within the Contingency
Period. The charge is 1% of the value of the shares sold or the Net Asset Value
at the time of purchase, whichever is less.
Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class I shares without a front-end sales charge may also be
subject to a Contingent Deferred Sales Charge if the retirement plan account is
closed within 365 days of the account's initial purchase in the Franklin
Templeton Funds.
We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will redeem
shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated NUMBER OF SHARES, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.
WAIVERS. We waive the Contingent Deferred Sales Charge for:
o Account fees
o Sales of shares purchased without a front-end sales charge by certain
retirement plan accounts if (i) the account was opened before May 1, 1997,
or (ii) the Securities Dealer of record received a payment from Distributors
of 0.25% or less, or (iii) Distributors did not make any payment in
connection with the purchase, or (iv) the Securities Dealer of record has
entered into a supplemental agreement with Distributors
o Redemptions by the Fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan set up before
February 1, 1995
o Redemptions through a systematic withdrawal plan set up on or after February
1, 1995, at a rate of up to 1% a month of an account's Net Asset Value. For
example, if you maintain an annual balance of $1 million in Class I shares,
you can redeem up to $120,000 annually through a systematic withdrawal plan
free of charge. Likewise, if you maintain an annual balance of $10,000 in
Class II shares, $1,200 may be redeemed annually free of charge.
o Distributions from individual retirement plan accounts due to death or
disability or upon periodic distributions based on life expectancy
o Tax-free returns of excess contributions from employee benefit plans
o Redemptions by Trust Company employee benefit plans or employee benefit
plans serviced by ValuSelect(R)
o Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee benefit
plans
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
The Fund intends to pay a dividend at least annually representing substantially
all of its net investment income and any net realized capital gains.
Dividends and capital gains are calculated and distributed the same way for each
class. The amount of any income dividends per share will differ, however,
generally due to the difference in the Rule 12b-1 fees of Class I and Class II.
Dividend payments are not guaranteed, are subject to the Board's discretion and
may vary with each payment. THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY
FIXED RATE OF RETURN ON AN INVESTMENT IN ITS SHARES.
If you buy shares shortly before the record date, please keep in mind that any
distribution will lower the value of the Fund's shares by the amount of the
distribution and you will then receive a portion of the price you paid back in
the form of a taxable distribution.
DISTRIBUTION OPTIONS
You may receive your distributions from the Fund in any of these ways:
1. BUY ADDITIONAL SHARES OF THE FUND -- You may buy additional shares of the
Fund (without a sales charge or imposition of a Contingent Deferred Sales
Charge) by reinvesting capital gain distributions, dividend distributions, or
both. This is a convenient way to accumulate additional shares and maintain or
increase your earnings base.
2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS -- You may direct your
distributions to buy shares of another Franklin Templeton Fund (without a sales
charge or imposition of a Contingent Deferred Sales Charge). Many shareholders
find this a convenient way to diversify their investments.
3. RECEIVE DISTRIBUTIONS IN CASH -- You may receive capital gain distributions,
dividend distributions, or both in cash. If you have the money sent to another
person or to a checking account, you may need a signature guarantee.
Distributions may be reinvested only in the SAME CLASS of shares, except as
follows: (i) Class II shareholders who chose to reinvest their distributions in
Class I shares of the Fund or another Franklin Templeton Fund before November
17, 1997, may continue to do so; and (ii) Class II shareholders may reinvest
their distributions in shares of any Franklin Templeton money fund.
TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE SECTIONS 6 AND 7 OF THE
SHAREHOLDER APPLICATION INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT
REPRESENTATIVE WHICH OPTION YOU PREFER. IF YOU DO NOT SELECT AN OPTION, WE WILL
AUTOMATICALLY REINVEST DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS IN THE SAME CLASS
OF THE FUND. You may change your distribution option at any time by notifying us
by mail or phone. Please allow at least seven days before the record date for us
to process the new option. For Trust Company retirement plans, special forms are
required to receive distributions in cash.
<PAGE>
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
SHARE PRICE
When you buy shares, you pay the Offering Price. This is the Net Asset Value per
share of the class you wish to purchase, plus any applicable sales charges. When
you sell shares, you receive the Net Asset Value per share minus any applicable
Contingent Deferred Sales Charges.
The Net Asset Value we use when you buy or sell shares is the one next
calculated after we receive your transaction request in proper form. If you buy
or sell shares through your Securities Dealer, however, we will use the Net
Asset Value next calculated after your Securities Dealer receives your request,
which is promptly transmitted to the Fund. Your redemption proceeds will not
earn interest between the time we receive the order from your dealer and the
time we receive any required documents.
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share of each class as of the scheduled close of the NYSE,
generally 4:00 p.m. Eastern time. You can find the prior day's closing Net Asset
Value and Offering Price for each class in many newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. Each class, however,
bears the Rule 12b-1 fees payable under its Rule 12b-1 plan. To calculate Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The Fund's assets are
valued as described under "How Are Fund Shares Valued?" in the SAI.
PROPER FORM
An order to buy shares is in proper form when we receive your signed shareholder
application and check. Written requests to sell or exchange shares are in proper
form when we receive signed written instructions, with a signature guarantee if
necessary. We must also receive any outstanding share certificates for those
shares.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The Fund's name,
o The class of shares,
o A description of the request,
o For exchanges, the name of the fund you are exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening if
preferred.
JOINT ACCOUNTS. For accounts with more than one registered owner, we accept
written instructions signed by only one owner for certain types of transactions
or account changes. These include transactions or account changes that you could
also make by phone, such as certain redemptions of $50,000 or less, exchanges
between identically registered accounts, and changes to the address of record.
For most other types of transactions or changes, written instructions must be
signed by all registered owners.
Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed by
all registered owners on the account.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You should be
able to obtain a signature guarantee from a bank, broker, credit union, savings
association, clearing agency, or securities exchange or association. A NOTARIZED
SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions and changes to your account by phone. Please
refer to the sections of this prospectus that discuss the transaction you would
like to make or call Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We may also record calls. If our lines
are busy or you are otherwise unable to reach us by phone, you may wish to ask
your investment representative for assistance or send us written instructions,
as described elsewhere in this prospectus.
For your protection, we may delay a transaction or not implement one if we are
not reasonably satisfied that the instructions are genuine. If this occurs, we
will not be liable for any loss. We also will not be liable for any loss if we
follow instructions by phone that we reasonably believe are genuine or if you
are unable to execute a transaction by phone.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS. We cannot accept instructions to sell
shares or change distribution options on Trust Company retirement plans by
phone. While you may exchange shares of Trust Company IRA and 403(b) retirement
accounts by phone, certain restrictions may be imposed on other retirement
plans.
To obtain any required forms or more information about distribution or transfer
procedures, please call Retirement Plan Services.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, we need you to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, we cannot accept instructions to change owners on the account unless all
owners agree in writing, even if the law in your state says otherwise. If you
would like another person or owner to sign for you, please send us a current
power of attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- ----------------------------- ---------------------------------------
CORPORATION Corporate Resolution
- ----------------------------- ----------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement
that identify the general partners, or
2. A certification for a partnership agreement
- ----------------------------- ----------------------------------------
TRUST 1. The pages from the trust document that
identify the trustees, or
2. A certification for trust
- ----------------------------- ----------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we cannot process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE
If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements and
other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions directly
from your dealer or representative, including instructions to exchange or redeem
your shares. Electronic instructions may be processed through established
electronic trading systems and programs used by the Fund. Telephone instructions
directly from your representative will be accepted unless you have told us that
you do not want telephone privileges to apply to your account.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $50. We will only do this
if the value of your account fell below this amount because you voluntarily sold
your shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to $100.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please refer to the shareholder application included with this
prospectus or contact your investment representative. The market value of the
Fund's shares may fluctuate and a systematic investment plan such as this will
not assure a profit or protect against a loss. You may discontinue the program
at any time by notifying Investor Services by mail or phone.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50. For retirement plans subject to
mandatory distribution requirements, the $50 minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account. Once your plan is established, any
distributions paid by the Fund will be automatically reinvested in your account.
You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if you
plan to buy shares on a regular basis. Shares sold under the plan may also be
subject to a Contingent Deferred Sales Charge. Please see "Contingent Deferred
Sales Charge" under "How Do I Sell Shares?"
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us in writing at
least seven business days before the end of the month preceding a scheduled
payment. Please see "How Do I Buy, Sell and Exchange Shares? -- Systematic
Withdrawal Plan" in the SAI for more information.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS(R) system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
o exchange shares between identically registered Franklin accounts; and
o request duplicate statements and deposit slips for Franklin accounts.
You will need the code number for each class to use TeleFACTS(R). The code
number is 102 for Class I and 202 for Class II.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. PLEASE VERIFY THE
ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.
o Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household and
send only one copy of a report. Call Fund Information if you would like an
additional free copy of the Fund's financial reports.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more information,
call Institutional Services.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor Services
at 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, Florida 33733-8030. The
Fund and Distributors are also located at this address. Global Advisors is
located in Lyford Cay, Nassau, Bahamas. You may also contact us by phone at one
of the numbers listed below.
<TABLE>
<CAPTION>
HOURS OF OPERATION (EASTERN TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- -------------------------------- ------------------ -------------------------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 8:30 a.m. to 8:00 p.m.
Dealer Services 1-800/524-4040 8:30 a.m. to 8:00 p.m.
Fund Information 1-800/DIAL BEN 8:30 a.m. to 11:00 p.m.
(1-800/342-5236) 9:30 a.m. to 5:30 p.m. (Saturday)
Retirement Plan Services 1-800/527-2020 8:30 a.m. to 8:00 p.m.
Institutional Services 1-800/321-8563 9:00 a.m. to 8:00 p.m.
TDD (hearing impaired) 1-800/851-0637 8:30 a.m. to 8:00 p.m.
</TABLE>
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
<PAGE>
GLOSSARY
USEFUL TERMS AND DEFINITIONS
BOARD - The Board of Directors of the Company
CD - Certificate of deposit
CLASS I AND CLASS II - The Fund offers two classes of shares, designated "Class
I" and "Class II." The two classes have proportionate interests in the Fund's
portfolio. They differ, however, primarily in their sales charge structures and
Rule 12b-1 plans.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the contingency
period is 18 months. Regardless of when during the month you purchased shares,
they will age one month on the last day of that month and each following month.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
DEPOSITARY RECEIPTS - are certificates that give their holders the right to
receive securities (a) of a foreign issuer deposited in a U.S. bank or trust
company (American Depositary Receipts, "ADRs"); or (b) of a foreign or U.S.
issuer deposited in a foreign bank or trust company (Global Depositary Receipts,
"GDRs" or European Depositary Receipts, "EDRs").
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Directors."
ELIGIBLE GOVERNMENTAL AUTHORITY - Any state or local government or any
instrumentality, department, authority or agency thereof that has determined the
Fund is a legally permissible investment and that can only buy shares of the
Fund without paying sales charges.
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity
Fund, and Templeton Variable Products Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R)and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator
GLOBAL ADVISORS - Templeton Global Advisors Limited, the Fund's investment
manager
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
LETTER - Letter of Intent
MARKET TIMERS - Market Timers generally include market timing or asset
allocation services, accounts administered so as to buy, sell or exchange shares
based on predetermined market indicators, or any person or group whose
transactions seem to follow a timing pattern or whose transactions include
frequent or large exchanges.
MOODY'S - Moody's Investors Service, Inc.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
OFFERING PRICE - The public offering price is based on the Net Asset Value per
share of the class and includes the front-end sales charge. The maximum
front-end sales charge is 5.75% for Class I and 1% for Class II.
QUALIFIED RETIREMENT PLANS - An employer sponsored pension or profit-sharing
plan that qualifies under section 401 of the Code. Examples include 401(k),
money purchase pension, profit sharing and defined benefit plans.
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
SEP - An employer sponsored simplified employee pension plan established under
section 408(k) of the Code
TELEFACTS(R)) - FRANKLIN TEMPLETON'S AUTOMATED CUSTOMER SERVICING SYSTEM
TRUST COMPANY - Franklin Templeton Trust Company. Trust Company is an affiliate
of Distributors and both are wholly owned subsidiaries of Resources.
U.S. - United States
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
<PAGE>
INSTRUCTIONS AND IMPORTANT NOTICE
SUBSTITUTE W-9 INSTRUCTIONS INFORMATION
GENERAL. Backup withholding is not an additional tax. Rather, the tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the IRS.
OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer
Identification Number or you do not know your SSN/TIN, you must obtain Form SS-5
or Form SS-4 from your local Social Security or IRS office and apply for one. If
you have checked the "Awaiting TIN" box and signed the certification,
withholding will apply to payments relating to your account unless you provide a
certified TIN within 60 days.
WHAT SSN/TIN TO GIVE. Please refer to the following guidelines:
<TABLE>
<CAPTION>
ACCOUNT TYPE GIVE SSN OF ACCOUNT TYPE GIVE EMPLOYER ID # OF
- --------------------------- ------------------- --------------------- -------------------------
<S> <C> <C> <C>
o Individual Individual o Trust, Estate, Trust, Estate, or
or Pension Plan Pension Plan Trust
Trust
- --------------------------- ------------------- --------------------- -------------------------
o Joint Individual Owner who o Corporation, Corporation,
will be Partnership, or Partnership, or
paying tax or other other organization
organization
first-named
individual
- --------------------------- ------------------- --------------------- -------------------------
o Unif.Gift/ Minor o Broker nominee Broker nominee
Transfer to Minor
- --------------------------- ------------------- --------------------- -------------------------
o Sole Proprietor Owner of
business
- --------------------------- ------------------- --------------------- -------------------------
o Legal Guardian Ward,
Minor, or
Incompetent
- --------------------------- ------------------- --------------------- -------------------------
</TABLE>
EXEMPT RECIPIENTS. Please provide your TIN and check the "Exempt Recipient" box
if you are an exempt recipient. Exempt recipients include:
A corporation An organization exempt from tax under
section 501(a), or an individual
A financial institution retirement plan
A registered dealer in securities An exempt charitable remainder trust
or commodities registered in or a non-exempt trust described in
the U.S. or a U.S. possession section 4947(a)(1)
A real estate investment trust An entity registered at all times
under the Investment Company
A common trustfund operated Act of 1940
by a bank under section 584(a)
IRS PENALTIES. If you do not supply us with your SSN/TIN, you will be subject to
an IRS $50 penalty unless your failure is due to reasonable cause and not
willful neglect. If you fail to report certain income on your federal income tax
return, you will be treated as negligent and subject to an IRS 20% penalty on
any underpayment of tax attributable to such negligence, unless there was
reasonable cause for the resulting underpayment and you acted in good faith. If
you falsify information on this form or make any other false statement resulting
in no backup withholding on an account which should be subject to backup
withholding, you may be subject to an IRS $500 penalty and certain criminal
penalties including fines and imprisonment.
SUBSTITUTE W-8 INSTRUCTIONS INFORMATION
EXEMPT FOREIGN PERSON. Check the "Exempt Foreign Person" box if you qualify as a
non-resident alien or foreign entity that is not subject to certain U.S.
information return reporting or to backup withholding rules. Dividends paid to
your account may be subject to withholding of up to 30%. You are an "Exempt
Foreign Person" if you are not (1) a citizen or resident of the U.S., or (2) a
U.S. corporation, partnership, estate, or trust. In the case of an individual,
an "Exempt Foreign Person" is one who has been physically present in the U.S.
for less than 31 days during the current calendar year. An individual who is
physically present in the U.S. for at least 31 days during the current calendar
year will still be treated as an "Exempt Foreign Person," provided that the
total number of days physically present in the current calendar year and the two
preceding calendar years does not exceed 183 days (counting all of the days in
the current calendar year, only one-third of the days in the first preceding
calendar year and only one-sixth of the days in the second preceding calendar
year). In addition, lawful permanent residents or green card holders may not be
treated as "Exempt Foreign Persons." If you are an individual or an entity, you
must not now be, or at this time expect to be, engaged in a U.S. trade or
business with respect to which any gain derived from transactions effected by
the Fund/Payer during the calendar year is effectively connected to the U.S. (or
your transactions are exempt from U.S. taxes under a tax treaty).
PERMANENT ADDRESS. The Shareholder Application must contain your permanent
address if you are an "Exempt Foreign Person." If you are an individual, provide
your permanent address. If you are a partnership or corporation, provide the
address of your principal office. If you are an estate or trust, provide the
address of your permanent residence or the principal office of any fiduciary.
NOTICE OF CHANGE IN STATUS. If you become a U.S. citizen or resident after you
have provided certification of your foreign status, or if you cease to be an
"Exempt Foreign Person," you must notify the Fund/Payer within 30 days of your
change in status. Reporting will then begin on the account(s) listed, and backup
withholding may also begin unless you certify to the Fund/Payer that (1) the
taxpayer identification number you have given is correct, and (2) the Internal
Revenue Service has not notified you that you are subject to backup withholding
because you failed to report certain interest or dividend income. You may use
Form W-9, "Payer's Request for Taxpayer Identification Number and
Certification," to make these certifications. If an account is no longer active,
you do not have to notify a Fund/Payer or broker of your change in status unless
you also have another account with the same Fund/Payer that is still active. If
you receive interest from more than one Fund/Payer or have dealings with more
than one broker or barter exchange, file a certificate with each. If you have
more than one account with the same Fund/Payer, the Fund/Payer may require you
to file a separate certificate for each account.
WHEN TO FILE. File these certifications with the Fund before a payment is made
to you, unless you have already done this in either of the two preceding
calendar years.
HOW OFTEN YOU MUST FILE. This certificate generally remains in effect for three
calendar years. A Fund/Payer or broker, however, may require that a new
certificate be filed each time a payment is made. On joint accounts for which
each joint owner is a foreign person, each must provide a certification of
foreign status.
<PAGE>
RESOLUTION SUPPORTING AUTHORITY OF
CORPORATE /ASSOCIATION SHAREHOLDER
INSTRUCTION:
It will be necessary for corporate/association shareholders to provide a
certified copy of a resolution or other certificate of authority supporting the
authority of designated officers of the corporation/association to issue oral
and written instruction on behalf of the corporation/association for the
purchase, sale (redemption), transfer and/or exchange of Franklin Templeton Fund
shares. You may use the following form of resolution or you may prefer to use
your own.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he/she is the duly elected
____________________________________of_______________________________________
Title Corporate Name
a ___________________________ organized under the laws of the
Type of Organization
State of ____________________ and that the following is a true and correct copy
State
of a resolution adopted by the Board of Directors by unanimous written consent
(a copy of which is attached) or at a meeting duly called and held on
______________________________, 19__.
"RESOLVED, that __________________________________________________________
Name of Corporation/Association
(the "Company") is authorized to invest the Company's assets in one or more
investment companies (mutual funds) whose shares are distributed by
Franklin/Templeton Distributors, Inc. ("Distributors"). Each such
investment company, or series thereof, is referred to as a "Franklin
Templeton Fund" or "Fund."
FURTHER RESOLVED, that any (enter number) _________________ of the following
officers of this Company (acting alone, if one, or acting together, if more
than one) is/are authorized to issue oral or written instructions (including
the signing of drafts in the case of draft accessed money fund accounts) on
behalf of the Company for the purchase, sale (redemption), transfer and/or
exchange of Fund shares and to execute any Fund application(s) and
agreements pertaining to Fund shares registered or to be registered to the
Company (referred to as a "Company Instruction"); and, that this authority
shall continue until Franklin/Templeton Investor Services, Inc. ("Investor
Services") receives written notice of revocation or amendment delivered by
registered mail. The Company's officers authorized to act on behalf of the
Company under this resolution are (enter officer titles only):
(referred to as the "Authorized Officers").
FURTHER RESOLVED, that Investor Services may rely on the most recently
provided incumbency certificate delivered by the Company to Investor
Services to identify those individuals who are the incumbent Authorized
Officers and that Investor Services shall have no independent duty to
determine if there has been any change in the individuals serving as
incumbent Authorized Officers.
FURTHER RESOLVED, that the Company ("Indemnitor") undertakes and agrees to
indemnify and hold harmless Distributors, each affiliate of Distributors,
each Franklin Templeton Fund and their officers, employees and agents
(referred to hereafter collectively as the "Indemnitees") from and against
any and all liability, loss, suits, claims, costs, damages and expenses of
whatever amount and whatever nature (including without limitation reasonable
attorneys' fees, whether for consultation and advice or representation in
litigation at both the trial and appellate level) any indemnitee may sustain
or incur by reason of, in consequence of, or arising from or in connection
with any action taken or not taken by an Indemnitee in good faith reliance
on a Company Instruction given as authorized under this resolution."
The undersigned further certifies that the below named persons, whose signatures
appear opposite their names, are the incumbent Authorized Officers (as that term
is defined in the above resolution) who have been duly elected to the office
identified beside their name(s) (attach additional list if necessary).
X
Name/title (please print or type) Signature
X
Name/title (please print or type) Signature
X
Name/title (please print or type) Signature
X
Name/title (please print or type) Signature
Certified from minutes
X_______________________________________
Signature
Name/title (please print or type)
CORPORATE SEAL (if appropriate)
<PAGE>
FRANKLIN TEMPLETON GROUP OF FUNDS
LITERATURE REQUEST E CALL 1-800/DIAL BEN (1-800/342-5236) today for a free
descriptive brochure and prospectus on any of the funds listed below. The
prospectus contains more complete information, including fees, charges and
expenses, and should be read carefully before investing or sending money.
GLOBAL GROWTH
Franklin Global Health Care Fund
Franklin Templeton Japan Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller
Companies Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller
Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
Franklin Templeton German
Government Bond Fund
Franklin Templeton
Global Currency Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and Income
Fund
GLOBAL INCOME
Franklin Global Government
Income Fund
Franklin Templeton Hard
Currency Fund
Franklin Templeton High
Income Currency Fund
Templeton Americas
Government Securities Fund
GROWTH
Franklin Biotechnology
Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap
Growth Fund
Franklin Small Cap Growth Fund
Mutual Discovery Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet
Investment Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin MicroCap Value Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends
Fund
Franklin Strategic Income Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
Templeton American Trust, Inc.
FUND ALLOCATOR SERIES
Franklin Templeton
Conservative Target Fund
Franklin Templeton
Moderate Target Fund
Franklin Templeton
Growth Target Fund
INCOME
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin's AGE High Income Fund
Franklin Investment
Grade Income Fund
Franklin Short-Intermediate U.S.
Government Securities Fund
Franklin U.S. Government
Securities Fund
Franklin Money Fund
Franklin Federal Money Fund
FOR CORPORATIONS
Franklin Corporate Qualified
Dividend Fund
FRANKLIN FUNDS SEEKING
TAX-FREE INCOME
Federal Intermediate-Term
Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free Income Fund
Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC FUNDS
SEEKING TAX-FREE INCOME
Alabama
Arizona*
Arkansas**
California*
Colorado
Connecticut
Florida*
Georgia
Hawaii**
Indiana
Kentucky
Louisiana
Maryland
Massachusetts***
Michigan*
Minnesota***
Missouri
New Jersey
New York*
North Carolina
Ohio***
Oregon
Pennsylvania
Tennessee**
Texas
Virginia
Washington**
VARIABLE ANNUITIES+
Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).
**The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
***Portfolio of insured municipal securities.
+Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued by
Allianz Life Insurance Company of North America or by its wholly owned
subsidiary, Preferred Life Insurance Company of New York, and distributed by
NALAC Financial Plans, LLC.
102 P 01/98
FGF09/97 [LOGO] Printed on recycled paper TL102 P
<PAGE>
TEMPLETON --------------------
WORLD FUND BULK RATE
U.S. POSTAGE
P.O. Box 33031 PAID
St. Petersburg, FL 33733-8031 SACRAMENTO, CA
PERMIT NO. 333
--------------------
TL102 P 01/98 [LOGO] Printed on recycled paper
<PAGE>
PART A
TEMPLETON FOREIGN FUND
CLASS I & II
PROSPECTUS
<PAGE>
PROSPECTUS & APPLICATION
INVESTMENT STRATEGY:
GLOBAL GROWTH Templeton
Foreign
Fund
JANUARY 1, 1998
[LOGO]
<PAGE>
- -------------------------------------------------------------------------------
This prospectus describes Class I and Class II shares of Templeton Foreign Fund
(the "Fund"). It contains information you should know before investing in the
Fund. Please keep it for future reference.
The Fund currently offers another class of shares with a different sales charge
and expense structure, which affects performance. This class is described in a
separate prospectus. For more information, contact your investment
representative or call 1-800/DIAL BEN.
The Fund is a diversified series of Templeton Funds, Inc. (the "Company"), an
open-end management investment company. The Company has a Statement of
Additional Information ("SAI") for its Class I and Class II shares, dated
January 1, 1998, which may be amended from time to time. It includes more
information about the Fund's procedures and policies. It has been filed with the
SEC and is incorporated by reference into this prospectus. For a free copy or a
larger print version of this prospectus, call 1-800/DIAL BEN.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TEMPLETON
FOREIGN FUND
- ------------------------------------------------------------------------------
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES
REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
PAGE
TEMPLETON FOREIGN FUND
- ------------
January 1, 1998
Whenreading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section.
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary............................... 2
Financial Highlights.......................... 4
How Does the Fund Invest Its Assets?.......... 6
What Are the Risks of Investing in the Fund?.. 9
Who Manages the Fund?......................... 11
How Does the Fund Measure Performance?........ 14
How Taxation Affects the Fund and Its
Shareholders.................................. 14
How Is the Fund Organized?.................... 18
ABOUT YOUR ACCOUNT
How Do I Buy Shares?.......................... 20
May I Exchange Shares for Shares of Another
Fund?......................................... 27
How Do I Sell Shares?......................... 31
What Distributions Might I Receive From the
Fund?......................................... 35
Transaction Procedures and Special
Requirements.................................. 36
Services to Help You Manage Your Account...... 41
What If I Have Questions About My Account?.... 43
GLOSSARY
Useful Terms and Definitions.................. 45
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, FL 33733-8030
1-800/DIAL BEN
<PAGE>
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
Fund. It is based on the historical expenses of each class for the fiscal year
ended August 31, 1997. The Fund's actual expenses may vary.
A. SHAREHOLDER TRANSACTION EXPENSES(+)
CLASS I CLASS II
Maximum Sales Charge
(as a percentage of Offering 5.75% 1.99%
Price)
Paid at time of purchase 5.75%(++) 1.00%(+++)
Paid at redemption(++++) NONE 0.99%
Exchange Fee (per transaction) $5.00* $ 5.00*
B. ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.61% 0.61%
Rule 12b-1 Fees 0.25%** 1.00%**
Other Expenses 0.22% 0.22%
---- ----
Total Fund Operating Expenses 1.08% 1.83%
C. EXAMPLE
Assume the annual return for each class is 5%, operating expenses are as
described above, and you sell your shares after the number of years shown.
These are the projected expenses for each $1,000 that you invest in the
Fund.
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- ------------------ --------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Class I $ 68*** $ 90 $ 114 $ 182
Class II $ 38 $ 67 $ 108 $ 223
</TABLE>
For the same Class II investment, you would pay projected expenses of $28 if
you did not sell your shares at the end of the first year. Your projected
expenses for the remaining periods would be the same.
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund pays its operating expenses. The effects of these expenses are
reflected in the Net Asset Value or dividends of each class and are not
directly charged to your account.
(+)IF YOUR TRANSACTION IS PROCESSED THROUGH YOUR SECURITIES DEALER, YOU MAY BE
CHARGED A FEE BY YOUR SECURITIES DEALER FOR THIS SERVICE.
(++)THERE IS NO FRONT-END SALES CHARGE IF YOU INVEST $1 MILLION OR MORE IN CLASS
I SHARES.
(+++)ALTHOUGH CLASS II HAS A LOWER FRONT-END SALES CHARGE THAN CLASS I, ITS RULE
12B-1 FEES ARE HIGHER. OVER TIME YOU MAY PAY MORE FOR CLASS II SHARES. PLEASE
SEE "HOW DO I BUY SHARES? -- CHOOSING A SHARE CLASS."
(++++)A CONTINGENT DEFERRED SALES CHARGE MAY APPLY TO ANY CLASS II PURCHASE IF
YOU SELL THE SHARES WITHIN 18 MONTHS AND TO CLASS I PURCHASES OF $1 MILLION OR
MORE IF YOU SELL THE SHARES WITHIN ONE YEAR. A CONTINGENT DEFERRED SALES CHARGE
MAY ALSO APPLY TO PURCHASES BY CERTAIN RETIREMENT PLANS THAT QUALIFY TO BUY
CLASS I SHARES WITHOUT A FRONT-END SALES CHARGE. THE CHARGE IS 1% OF THE VALUE
OF THE SHARES SOLD OR THE NET ASSET VALUE AT THE TIME OF PURCHASE, WHICHEVER IS
LESS. THE NUMBER IN THE TABLE SHOWS THE CHARGE AS A PERCENTAGE OF OFFERING
PRICE. WHILE THE PERCENTAGE IS DIFFERENT DEPENDING ON WHETHER THE CHARGE IS
SHOWN BASED ON THE NET ASSET VALUE OR THE OFFERING PRICE, THE DOLLAR AMOUNT PAID
BY YOU WOULD BE THE SAME. SEE "HOW DO I SELL SHARES? -- CONTINGENT DEFERRED
SALES CHARGE" FOR DETAILS.
*$5.00 FEE IS ONLY FOR MARKET TIMERS. WE PROCESS ALL OTHER EXCHANGES WITHOUT A
FEE.
**THE COMBINATION OF FRONT-END SALES CHARGES AND RULE 12B-1 FEES COULD CAUSE
LONG-TERM SHAREHOLDERS TO PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM
FRONT-END SALES CHARGE PERMITTED UNDER THE NASD'S RULES.
***ASSUMES A CONTINGENT DEFERRED SALES CHARGE WILL NOT APPLY.
<PAGE>
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's financial history. The information has been
audited by McGladrey & Pullen, LLP, the Fund's independent auditors. Their audit
report covering each of the most recent five years appears in the financial
statements in the Fund's Annual Report to Shareholders for the fiscal year ended
August 31, 1997. The Annual Report to Shareholders also includes more
information about the Fund's performance. For a free copy, please call Fund
Information.
<TABLE>
<CAPTION>
CLASS I SHARES
YEAR ENDED AUGUST 31 1997 1996 1995
<S> <C> <C> <C>
------------------------------------ -------------- ------------- -------------
Per Share Operating Performance(1)
(for a share outstanding
throughout the year)
Net asset value, beginning of year $ 9.97 $ 9.62 $ 10.01
-------------- ------------- -------------
Income from investment operations:
Net investment income .32 .27 .23
Net realized and unrealized gains
(losses) 1.56 .69 .05
-------------- ------------- -------------
Total from investment operations 1.88 .96 .28
-------------- ------------- -------------
Less distributions:
Dividends from net investment (.28) (.25) (.16)
income
Distributions from net realized (.17) (.36) (.51)
gains -------------- ------------- -------------
Total distributions (.45) (.61) (.67)
-------------- ------------- -------------
Net asset value, end of year $ 11.40 $ 9.97 $ 9.62
-------------- ------------- -------------
Total return(2) 19.55% 10.68% 3.14%
Ratios/Supplemental Data:
Net assets, end of year (000) $ 14,367,787 $ 9,602,209 $ 6,941,238
Ratios to average net assets:
Expenses 1.08% 1.12% 1.15%
Net investment income 3.28% 3.09% 2.81%
Portfolio turnover rate 37.28% 15.91% 21.78%
Average commission rate paid(3) $ .0005 $ .0075 --
</TABLE>
(1)PER SHARE AMOUNTS FOR YEARS ENDED PRIOR TO AUGUST 31, 1994 HAVE BEEN RESTATED
TO REFLECT A 3-FOR-1 STOCK SPLIT EFFECTIVE FEBRUARY 25, 1994.
(2)TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS.
(3)RELATES TO PURCHASES AND SALES OF EQUITY SECURITIES. PRIOR TO FISCAL YEAR END
1996 DISCLOSURE OF AVERAGE COMMISSION RATE WAS NOT REQUIRED.
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988
-------------- ------------- ------------- ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 8.74 $ 7.92 $ 7.91 $ 8.19 $ 7.60 $ 6.37 $ 7.73
-------------- ------------- ------------- ------------- ------------ ----------- ------------
.14 .14 .20 .25 .25 .22 .21
1.39 1.21 .43 .03 .92 1.60 (.97)
-------------- ------------- ------------- ------------- ------------ ----------- ---------------
1.53 1.35 .63 .28 1.17 1.82 (.76)
-------------- ------------- ------------- ------------- ------------ ----------- ---------------
(.13) (.19) (.23) (.26) (.25) (.21) (.19)
(.13) (.34) (.39) (.30) (.33) (.38) (.41)
-------------- ------------- ------------- ------------- ------------ ----------- ---------------
(.26) (.53) (.62) (.56) (.58) (.59) (.60)
-------------- ------------- ------------- ------------- ------------ ----------- ------------ --
$ 10.01 $ 8.74 $ 7.92 $ 7.91 $ 8.19 $ 7.60 $ 6.37
-------------- ------------- ------------- ------------- ------------ ----------- ------------ --
17.94% 18.65% 8.52% 4.17% 16.35% 30.99% (8.78)%
$ 5,014,438 $ 2,667,771 $ 1,672,161 $ 1,211,525 $ 932,995 $ 438,571 $ 292,679
1.14% 1.12% .94% .80% .77% .81% .81%
1.84% 2.11% 2.92% 3.59% 3.95% 3.65% 3.29%
36.75% 21.29% 22.00% 19.24% 11.49% 16.62% 20.37%
-- -- -- -- -- -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLASS II SHARES
YEAR ENDED AUGUST 31 1997 1996 1995(1)
---------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout
the year)
Net asset value, beginning of year $ 9.87 $ 9.59 $ 9.16
------------ ------------ -------------
Income from investment operations:
Net investment income .26 .30 .03
Net realized and unrealized gains 1.52 .58 .40
------------ ------------ -------------
Total from investment operations 1.78 .88 .43
------------ ------------ -------------
Less distributions:
Dividends from net investment income (.23) (.24) --
Distributions from net realized gains (.17) (.36) --
------------ ------------ -------------
Total distributions (.40) (.60) --
------------ ------------ -------------
Net asset value, end of year $ 11.25 $ 9.87 $ 9.59
------------ ------------ -------------
Total return(2) 18.65% 9.78% 4.81%
Ratios/Supplemental Data:
Net assets, end of year (000) $ 1,303,639 $ 527,443 $ 63,428
Ratios to average net assets
Expenses 1.83% 1.87% 1.90%(3)
Net investment income 2.62% 2.63% 1.86%(3)
Portfolio turnover rate 37.28% 15.91% 21.78%
Average commission rate paid(4) $ .0005 $ .0075 --
</TABLE>
(1)FOR THE PERIOD FROM MAY 1, 1995 (COMMENCEMENT OF SALES) THROUGH AUGUST 31,
1995.
(2)TOTAL RETURN DOES NOT REFLECT SALES COMMISSIONS OR THE CONTINGENT DEFERRED
SALES CHARGE AND IS NOT ANNUALIZED.
(3)ANNUALIZED.
(4)RELATES TO PURCHASES AND SALES OF EQUITY SECURITIES. PRIOR TO FISCAL YEAR END
1996 DISCLOSURE OF AVERAGE COMMISSION RATE WAS NOT REQUIRED.
HOW DOES THE FUND INVEST ITS ASSETS?
WHAT IS THE FUND'S GOAL?
The investment goal of the Fund is long-term capital growth. This goal is
fundamental which means that it may not be changed without shareholder approval.
WHAT KINDS OF SECURITIES DOES THE FUND PURCHASE?
The Fund tries to achieve its investment goal by a flexible policy of investing
in the equity and debt securities of companies and governments outside the U.S.
EQUITY SECURITIES generally entitle the holder to participate in a company's
general operating results. These include common stock; preferred stock;
convertible securities; warrants or rights. The Fund's primary investments are
in common stock.
In selecting these equity securities, Global Advisors does a company-by- company
analysis, rather than focusing on a specific industry or economic sector. Global
Advisors concentrates primarily on the market price of a company's securities
relative to its view regarding the company's long-term earnings potential. A
company's historical value measures, including price/ earnings ratios, profit
margins and liquidation value, will also be considered.
DEBT SECURITIES represent an obligation of the issuer to repay a loan of money
to it, and generally, provide for the payment of interest. These include bonds,
notes and debentures; commercial paper; time deposits; bankers' acceptances; and
structured investments which are described more fully in the SAI.
The Fund may buy both rated and unrated debt securities. Independent rating
organizations rate debt securities based upon their assessment of the financial
soundness of the issuer. Generally, a lower rating indicates higher risk. The
Fund may buy debt securities which are rated Caa by Moody's or CCC by S&P or
better; or unrated debt which it determines to be of comparable quality. At
present, the Fund does not intend to invest more than 5% of its total assets in
non-investment grade securities (rated lower than BBB by S&P or Baa by Moody's).
Please see the SAI for more details on the risks associated with lower-rated
securities.
DEPOSITARY RECEIPTS. The Fund may also invest in American, European and Global
Depositary Receipts. Depositary Receipts are certificates typically issued by a
bank or trust company that give their holders the right to receive securities
issued by a foreign or domestic corporation.
GENERAL. The Fund may invest up to 5% of its total assets in securities issued
by any one company or foreign government. The Fund may invest any amount of its
assets in U.S. government securities. The Fund may invest in any industry
although it will not concentrate (invest more than 25% of its total assets) in
any one industry. The Fund may invest up to 15% of its total assets in
securities that are not listed on a recognized U.S. or foreign securities
exchange, including up to 10% of its total assets in securities with a limited
trading market.
Please see the SAI for more details on the types of securities in which the Fund
invests.
WHAT ARE SOME OF THE FUND'S OTHER INVESTMENT STRATEGIES AND PRACTICES?
TEMPORARY INVESTMENTS. When Global Advisors believes that the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist, it may invest the Fund's
portfolio in a temporary defensive manner. Under such circumstances, the Fund
may invest up to 100% of its assets in: (1) U.S. government securities; (2) bank
time deposits denominated in the currency of any major nation; (3) commercial
paper rated A-1 by S&P or Prime-1 by Moody's or, if unrated, issued by a company
which, at the date of investment, had an outstanding debt issue rated AAA or AA
by S&P or Aaa or Aa by Moody's; and (4) repurchase agreements with banks and
broker-dealers.
REPURCHASE AGREEMENTS. The Fund will generally have a portion of its assets in
cash or cash equivalents for a variety of reasons including waiting for a
special investment opportunity or taking a defensive position. To earn income on
this portion of its assets, the Fund may enter into repurchase agreements with
certain banks and broker-dealers. Under a repurchase agreement, the Fund agrees
to buy a U.S. government security from one of these issuers and then to sell the
security back to the issuer after a short period of time (generally, less than
seven days) at a higher price. The bank or broker-dealer must transfer to the
Fund's custodian securities with an initial value of at least 102% of the dollar
amount invested by the Fund in each repurchase agreement.
SHORT-TERM TRADING AND PORTFOLIO TURNOVER. The Fund invests for long-term
capital growth and does not intend to emphasize short-term trading profits. It
is anticipated, therefore, that the Fund's annual portfolio turnover rate
generally will be below 50%; although this rate may be higher or lower, in
relation to market conditions. A portfolio turnover rate of less than 50% means
that in a one year period, less than one-half of the Fund's portfolio is
changed.
OTHER POLICIES AND RESTRICTIONS. The Fund has a number of additional investment
restrictions that govern its activities. Some of these restrictions may only be
changed with shareholder approval and some may be changed by the Board alone.
For a list of these restrictions and more information about the Fund's
investment policies, including those described above, and their associated
risks, please see "How Do the Funds Invest Their Assets?" and "Investment
Restrictions" in the SAI.
The policies and restrictions discussed in this prospectus and in the SAI are
applied at the time the Fund makes an investment. The Fund is generally not
required to sell a security because of a change in circumstances.
WHAT ARE THE RISKS OF INVESTING IN THE FUND?
GENERAL RISK. There is no assurance that the Fund's investment goal will be met.
The Fund will seek to spread investment risk by diversifying its investments but
the possibility of losses remains. Generally, if the securities owned by the
Fund increase in value, the value of the shares of the Fund which you own will
increase. Similarly, if the securities owned by the Fund decrease in value, the
value of your shares will also decline. In this way, you participate in any
change in the value of the securities owned by the Fund.
FOREIGN SECURITIES RISK. The value of foreign (and U.S.) securities is affected
by general economic conditions and individual company and industry earnings
prospects. While foreign securities may offer significant opportunities for
gain, they also involve additional risks that can increase the potential for
losses in the Fund. These risks can be significantly greater for investments in
emerging markets. Investments in Depositary Receipts also involve some or all of
the risks described below.
The political, economic and social structures of some countries in which the
Fund invests may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the imposition
of exchange controls, expropriation, restrictions on removal of currency or
other assets, nationalization of assets, and punitive taxes.
There may be less publicly available information about a foreign company or
government than about a U.S. company or public entity. Certain countries'
financial markets and services are less developed than those in the U.S. or
other major economies. As a result, they may not have uniform accounting,
auditing and financial reporting standards and may have less government
supervision of financial markets. Foreign securities markets may have
substantially lower trading volumes than U.S. markets, resulting in less
liquidity and more volatility than experienced in the U.S. Transaction costs on
foreign securities markets are generally higher than in the U.S. The settlement
practices may be cumbersome and result in delays that may affect portfolio
liquidity. The Fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies and obtaining judgments with respect
to foreign investments in foreign courts than with respect to domestic issuers
in U.S. courts.
Some of the countries in which the Fund may invest such as Russia and certain
Asian and Eastern European countries are considered developing or emerging
markets. Investments in these markets are subject to all of the risks of foreign
investing generally, and have additional and heightened risks due to a lack of
legal, business and social frameworks to support securities markets.
Emerging markets involve additional significant risks, including political and
social uncertainty (for example, regional conflicts and risk of war), currency
exchange rate volatility, pervasiveness of corruption and crime, delays in
settling portfolio transactions and risk of loss arising out of the system of
share registration and custody. The Fund may invest up to 100% of its total
assets in emerging markets, including up to 5% of its total assets in Russian
securities. For more information on the risks associated with emerging markets
securities, please see the SAI.
On July 1, 1997, Hong Kong reverted to the sovereignty of China. As with any
major political transfer of power, this could result in political, social,
economic, market or other developments in Hong Kong, China or other countries
that could affect the value of Fund investments.
MARKET, CURRENCY, AND INTEREST RATE RISK. General market movements in any
country where the Fund has investments are likely to affect the value of the
securities which the Fund owns in that country and the Fund's share price may
also be affected. The Fund's investments may be denominated in foreign
currencies so that changes in foreign currency exchange rates will also affect
the value of what the Fund owns, and thus the price of its shares. To the extent
the Fund invests in debt securities, changes in interest rates in any country
where the Fund is invested will affect the value of the Fund's portfolio and,
consequently, its share price. Rising interest rates, which often occur during
times of inflation or a growing economy, are likely to cause the face value of a
debt security to decrease, having a negative effect on the value of the Fund's
shares. Of course, individual and worldwide stock markets, interest rates and
currency valuations have both increased and decreased, sometimes very
dramatically, in the past. These changes are likely to occur again in the future
at unpredictable times.
CREDIT AND ISSUER RISK. The Fund's investments in debt securities involve credit
risk. This is the risk that the issuer of a debt security will be unable to make
principal and interest payments in a timely manner and the debt security will go
into default. The Fund may invest up to 10% of its total assets in defaulted
debt securities. The purchase of defaulted debt securities involves significant
additional risks, such as the possibility of complete loss of the investment in
the event the issuer does not restructure or reorganize to enable it to resume
paying interest and principal to holders.
WHO MANAGES THE FUND?
THE BOARD. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations. The
Board also monitors the Fund to ensure no material conflicts exist among the
Fund's classes of shares. While none is expected, the Board will act
appropriately to resolve any material conflict that may arise.
INVESTMENT MANAGER. Global Advisors manages the Fund's assets and makes its
investment decisions. Global Advisors also performs similar services for other
funds. It is wholly owned by Resources, a publicly owned company engaged in the
financial services industry through its subsidiaries. Charles B. Johnson and
Rupert H. Johnson, Jr. are the principal shareholders of Resources. Together,
Global Advisors and its affiliates manage over $223 billion in assets. The
Templeton organization has been investing globally since 1940. Global Advisors
and its affiliates have offices in Argentina, Australia, Bahamas, Canada,
France, Germany, Hong Kong, India, Italy, Japan, Korea, Luxembourg, Poland,
Russia, Singapore, South Africa, Taiwan, United Kingdom, U.S. and Vietnam.
Please see "Investment Management and Other Services" and "Miscellaneous
Information" in the SAI for information on securities transactions and a summary
of the Fund's Code of Ethics.
PORTFOLIO MANAGEMENT. The Fund's lead portfolio manager since 1987 is Mark
Holowesko. Mr. Holowesko is president of Global Advisors. He holds a BA in
economics from Holy Cross College and an MBA from Babson College. He is a
Chartered Financial Analyst, Chartered Investment Counselor, and a founding
member of the International Society of Financial Analysts. Prior to joining the
Templeton organization in 1985, Mr. Holowesko worked with RoyWest Trust
Corporation (Bahamas) Limited as an investment analyst. His duties at RoyWest
included managing trust and individual accounts, as well as equity market
research worldwide. Mr. Holowesko is responsible for coordinating equity
research and portfolio management activities worldwide for the Templeton Global
Equity Group and managing several mutual funds.
Jeffrey A. Everett and Richard Sean Farrington have secondary portfolio
management responsibilities for the Fund. Mr. Everett is an executive vice
president of Global Advisors. He holds a BS in finance from Pennsylvania State
University and is also a Chartered Financial Analyst. Prior to joining the
Templeton organization in 1989, Mr. Everett was an investment officer at First
Pennsylvania Investment Research, a division of First Pennsylvania Corporation,
where he analyzed equity and convertible securities. He also coordinated
research for Centre Square Investment Group, the pension management subsidiary
of First Pennsylvania Corporation. Mr. Everett is responsible for managing
several offshore accounts at Templeton, as well as several Templeton funds. His
global research responsibilities encompass industry coverage for real estate and
country responsibilities for Italy and Australia. Mr. Farrington is a vice
president of Global Advisors. He holds a BA in economics from Harvard
University. Mr. Farrington is a Chartered Financial Analyst. He has served as
the president of the Bahamas Society of Financial Analysts and is currently on
the board of the International Society of Financial Analysts. He joined the
Templeton organization in 1991 and is a research analyst and portfolio manager.
Mr. Farrington's research responsibilities include global coverage of electrical
equipment industries, as well as international electric utilities. He is also
responsible for country coverage of Hong Kong, China and Taiwan.
MANAGEMENT FEES. During the fiscal year ended August 31, 1997, management fees
totaling 0.61% of the average daily net assets of the Fund were paid to Global
Advisors. Total expenses, including fees paid to Global Advisors, were 1.08% of
the average daily net assets of the Fund for Class I and 1.83% for Class II.
PORTFOLIO TRANSACTIONS. Global Advisors tries to obtain the best execution on
all transactions. If Global Advisors believes more than one broker or dealer can
provide the best execution, it may consider research and related services and
the sale of Fund shares, as well as shares of other funds in the Franklin
Templeton Group of Funds, when selecting a broker or dealer. Please see "How Do
the Funds Buy Securities for Their Portfolios?" in the SAI for more information.
ADMINISTRATIVE SERVICES. Since October 1, 1996, FT Services has provided certain
administrative services and facilities for the Fund. Prior to that date,
Templeton Global Investors, Inc. provided the same services to the Fund. During
the fiscal year ended August 31, 1997, administration fees totaled 0.08% of the
average daily net assets of the Fund. These fees are included in the amount of
total expenses shown above. Please see "Investment Management and Other
Services" in the SAI for more information.
THE RULE 12B-1 PLANS
Class I and Class II have separate distribution plans or "Rule 12b-1 Plans"
under which they may pay or reimburse Distributors or others for the expenses of
activities that are primarily intended to sell shares of the class. These
expenses may include, among others, distribution or service fees paid to
Securities Dealers or others who have executed a servicing agreement with the
Fund, Distributors or its affiliates; a prorated portion of Distributors'
overhead expenses; and the expenses of printing prospectuses and reports used
for sales purposes, and preparing and distributing sales literature and
advertisements.
Payments by the Fund under the Class I plan may not exceed 0.25% per year of
Class I's average daily net assets. Expenses not reimbursed in any quarter may
be reimbursed in future quarters or years. This includes expenses not reimbursed
because they exceeded the applicable limit under the plan. As of August 31,
1997, expenses under the Class I plan that may be reimbursable in future
quarters or years totaled $2,253,047, or 0.02% of Class I's net assets. During
the first year after certain Class I purchases made without a sales charge,
Distributors may keep the Rule 12b-1 fees associated with the purchase.
Under the Class II plan, the Fund may pay Distributors up to 0.75% per year of
Class II's average daily net assets to pay Distributors or others for providing
distribution and related services and bearing certain Class II expenses. All
distribution expenses over this amount will be borne by those who have incurred
them. During the first year after a purchase of Class II shares, Distributors
may keep this portion of the Rule 12b-1 fees associated with the purchase.
The Fund may also pay a servicing fee of up to 0.25% per year of Class II's
average daily net assets under the Class II plan. This fee may be used to pay
Securities Dealers or others for, among other things, helping to establish and
maintain customer accounts and records, helping with requests to buy and sell
shares, receiving and answering correspondence, monitoring dividend payments
from the Fund on behalf of customers, and similar servicing and account
maintenance activities.
The Rule 12b-1 fees charged to each class are based only on the fees
attributable to that particular class. For more information, please see "The
Funds' Underwriter" in the SAI.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, each class of the Fund advertises its performance. A commonly
used measure of performance is total return. Performance figures are usually
calculated using the maximum sales charges, but certain figures may not include
sales charges.
Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested.
The investment results of each class will vary. Performance figures are always
based on past performance and do not guarantee future results. For a more
detailed description of how the Fund calculates its performance figures, please
see "How Do the Funds Measure Performance?" in the SAI.
HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
ON AUGUST 5, 1997, PRESIDENT CLINTON SIGNED INTO LAW THE TAXPAYER RELIEF ACT OF
1997 (THE "1997 ACT"). THIS NEW LAW MAKES SWEEPING CHANGES IN THE CODE. BECAUSE
MANY OF THESE CHANGES ARE COMPLEX, THEY ARE DISCUSSED IN THE SAI.
TAXATION OF THE FUND'S INVESTMENTS. The Fund invests your money in the bonds,
stocks and other securities that are described in the section "How Does the Fund
Invest Its Assets?" Special tax rules may apply in determining the income and
gains the Fund earns on its investments. These rules may, in turn, affect the
amount of distributions that the Fund pays to you. These special tax rules are
discussed in the SAI.
TAXATION OF THE FUND. As a regulated investment company, the Fund generally pays
no federal income tax on the income and gains that it distributes to you.
HOW DOES THE FUND EARN INCOME AND GAINS?
The Fund earns interest and dividends (the Fund's "income") on its investments.
When the Fund sells a security for a price that is higher than it paid, it has a
gain. When the Fund sells a security for a price that is lower than it paid, it
has a loss. If the Fund has held the security for more than one year, the gain
or loss will be a long-term capital gain or loss. If the Fund has held the
security for one year or less, the gain or loss will be a short-term capital
gain or loss. The Fund's gains and losses are netted together, and, if the Fund
has a net gain (the Fund's "gains"), that gain will generally be distributed to
you.
FOREIGN TAXES. Foreign governments may impose taxes on the income and gains
from the Fund's investments in foreign stocks and bonds. These taxes will reduce
the amount of the Fund's distributions to you. The Fund may also invest in the
securities of foreign companies that are "passive foreign investment companies"
("PFICs"). These investments in PFICs may cause the Fund to pay income taxes and
interest charges. If possible, the Fund will not invest in PFICs or will adopt
other strategies to avoid these taxes and charges.
TAXATION OF SHAREHOLDERS
DISTRIBUTIONS. Distributions from the Fund, whether you receive them in cash or
in additional shares, are generally subject to income tax. The Fund will send
you a statement in January of the current year showing the ordinary dividends,
capital gain distributions and non-taxable distributions you received from the
Fund in the prior year. The amounts on this statement will include distributions
declared in December of the prior year, and paid to you in January of the
current year. These distributions are taxable as if you had received them on
December 31 of the prior year. The IRS requires you to report these amounts on
your income tax return for the prior year.
WHAT IS A DISTRIBUTION?
As a shareholder, you will receive your share of the Fund's income and gains on
its investments in bonds, stocks and other securities. The Fund's income and
short-term capital gains are paid to you as ordinary dividends. The Fund's
long-term capital gains are paid to you as capital gain distributions. If the
Fund pays you an amount in excess of its income and gains, this excess will
generally be treated as a non-taxable distribution. These amounts, taken
together, are what we call the Fund's distributions to you.
The Fund's statement for the prior year will tell you how much of your capital
gain distribution represents 28% rate gain, or 25% rate gain, if applicable. The
remainder of the capital gain distribution, after subtracting out these amounts,
represents 20% rate gain.
DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your qualified
retirement plan, such as a Section 401(k) plan or IRA, are generally
tax-deferred; this means that you are not required to report Fund distributions
on your income tax return when paid to your plan, but, rather, when your plan
makes payments to you.
DIVIDENDS-RECEIVED DEDUCTION. Either none or only a small portion of the Fund's
distributions will qualify for the corporate dividends-received deduction.
REDEMPTIONS AND EXCHANGES. If you redeem your shares or if you exchange your
shares in the Fund for shares in another Franklin Templeton Fund, you will
generally have a gain or loss that the IRS requires you to report on your income
tax return. If you exchange Fund shares held for 90 days or less and pay no
sales charge or a reduced sales charge for the new shares, all or a portion of
the sales charge you paid on the purchase of the shares you exchanged is not
included in their cost for purposes of computing gain or loss on the exchange.
If you hold your shares for six months or less, any loss you have will be
treated as a long-term capital loss to the extent of any capital gains
distributions received by you from the Fund. All or a portion of any loss on the
redemption or exchange of your shares will be disallowed by the IRS if you
purchase other shares in the Fund within 30 days before or after your redemption
or exchange.
WHAT IS A REDEMPTION?
A redemption is a sale by you to the Fund of some or all of your shares in the
Fund. The price per share you receive when you redeem Fund shares may be more or
less than the price at which you purchased those shares. An exchange of shares
in the Fund for shares of another Franklin Templeton Fund is treated as a
redemption of Fund shares and then a purchase of shares of the other Fund. When
you redeem or exchange your shares, you will generally have a gain or loss,
depending upon whether the basis in your shares is more or less than your cost
or other basis in the shares. Call Fund Information at 1-800-342-5236 for a free
Shareholder Tax Information Handbook if you need more information in calculating
the gain or loss on the redemption or exchange of your shares.
FOREIGN TAXES. If more than 50% of the value of the Fund's assets consists of
foreign securities, the Fund may elect to pass-through to you the amount of
foreign taxes it paid. If the Fund makes this election, your year-end statement
will show more taxable income than was actually distributed to you. However, you
will be entitled to either deduct your share of such taxes in computing your
taxable income or claim a foreign tax credit for such taxes against your U.S.
federal income tax. Your year-end statement, showing the amount of deduction or
credit available to you, will be distributed to you in January along with other
shareholder information records including your Fund Form 1099-DIV.
WHAT IS A FOREIGN TAX CREDIT?
A foreign tax credit is a tax credit for the amount of taxes imposed by a
foreign country on earnings of the Fund. When a foreign company in which the
Fund invests pays a dividend to the Fund, the dividend will generally be subject
to a withholding tax. The taxes withheld in foreign countries create credits
that you may use to offset your U.S. federal income tax.
The 1997 Act includes a provision that allows you to claim these credits
directly on your income tax return (Form 1040) and eliminates the previous
requirement that you complete a detailed supporting form. To qualify, you must
have $600 or less in joint return foreign taxes ($300 or less on a single
return), all of which are reported to you on IRS Form 1099-DIV. THIS SIMPLIFIED
PROCEDURE APPLIES ONLY FOR CALENDAR YEARS 1998 AND BEYOND, AND IS NOT AVAILABLE
IN 1997.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S. income
tax withholding. Your home country may also tax ordinary dividends, capital gain
distributions and gains arising from redemptions or exchanges of your Fund
shares. Fund shares held by the estate of a non-U.S. investor may be subject to
U.S. estate tax. You may wish to contact your tax advisor to determine the U.S.
and non-U.S. tax consequences of your investment in the Fund.
STATE TAXES. Ordinary dividends and capital gain distributions that you receive
from the Fund as well as gains arising from redemptions or exchanges of your
Fund shares will generally be subject to state and local income tax. The holding
of Fund shares may also be subject to state and local intangibles taxes. You may
wish to contact your tax advisor to determine the state and local tax
consequences of your investment in the Fund.
BACKUP WITHHOLDING. When you open an account, IRS regulations require that you
provide your taxpayer identification number ("TIN"), certify that it is correct,
and certify that you are not subject to backup withholding under IRS rules. If
you fail to provide a correct TIN or the proper tax certifications, the Fund is
required to withhold 31% of all the distributions (including ordinary dividends
and capital gain distributions) and redemption proceeds paid to you. The Fund is
also required to begin backup withholding on your account if the IRS instructs
the Fund to do so. The Fund reserves the right not to open your account or,
alternatively, to redeem your shares at the current net asset value, less any
taxes withheld, if you fail to provide a correct TIN, fail to provide the proper
tax certifications, or the IRS instructs the Fund to begin backup withholding on
your account.
WHAT IS A BACKUP WITHHOLDING?
Backup withholding occurs when the Fund is required to withhold and pay over to
the IRS 31% of your distributions and redemption proceeds. You can avoid backup
withholding by providing the Fund with your TIN, and by completing the tax
certifications on your account application that you were asked to sign when you
opened your account. However, if the IRS instructs the Fund to begin backup
withholding, it is required to do so even if you provided the Fund with your TIN
and these tax certifications, and backup withholding will remain in place until
the Fund is instructed by the IRS that it is no longer required.
THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE FUND. A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS IS CONTAINED IN THE SECTION
ENTITLED "ADDITIONAL INFORMATION ABOUT DISTRIBUTIONS AND TAXES" IN THE SAI. THE
TAX TREATMENT OF DISTRIBUTIONS OF ORDINARY DIVIDENDS, CAPITAL GAIN
DISTRIBUTIONS, FOREIGN TAXES PAID, AND INCOME TAXES WITHHELD IS ALSO DISCUSSED
IN A FREE SHAREHOLDER TAX INFORMATION HANDBOOK, AVAILABLE FROM FUND INFORMATION
AT 1-800-342-5236.
HOW IS THE FUND ORGANIZED?
The Fund is a diversified series of the Company, an open-end management
investment company, commonly called a mutual fund. The Company was organized as
a Maryland corporation on August 15, 1977, and is registered with the SEC. As of
January 1, 1997, the Fund began offering a new class of shares designated
Templeton Foreign Fund -- Advisor Class. All shares outstanding before the
offering of Advisor Class shares have been designated Templeton Foreign Fund --
Class I and Templeton Foreign Fund -- Class II. Additional series and classes of
shares may be offered in the future.
Shares of each class represent proportionate interests in the assets of the Fund
and have the same voting and other rights and preferences as any other class of
the Fund for matters that affect the Fund as a whole. For matters that only
affect one class, however, only shareholders of that class may vote. Each class
will vote separately on matters affecting only that class, or expressly required
to be voted on separately by state or federal law. Shares of each class of a
series have the same voting and other rights and preferences as the other
classes and series of the Company for matters that affect the Company as a
whole.
The Company has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Company does not intend to hold annual shareholder meetings. The Company or
a series of the Company may hold special meetings, however, for matters
requiring shareholder approval. A meeting may also be called by the Board in its
discretion or for the purpose of considering the removal of a Board member if
requested in writing to do so by shareholders holding at least 10% of the
outstanding shares. In certain circumstances, we are required to help you
communicate with other shareholders about the removal of a Board member.
PAGE
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
To open your account, contact your investment representative or complete and
sign the enclosed shareholder application and return it to the Fund with your
check. PLEASE INDICATE WHICH CLASS OF SHARES YOU WANT TO BUY. IF YOU DO NOT
SPECIFY A CLASS, YOUR PURCHASE WILL BE AUTOMATICALLY INVESTED IN CLASS I SHARES.
MINIMUM
INVESTMENTS*
---------------------- ---------------------
To Open Your Account. $ 100
To Add to Your Account $ 25
*We may waive these minimums for retirement plans. We may also refuse any order
to buy shares.
CHOOSING A SHARE CLASS
Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. The class that may be best for
you depends on a number of factors, including the amount and length of time you
expect to invest. Generally, Class I shares may be more attractive for long-term
investors or investors who qualify to buy Class I shares at a reduced sales
charge. Your financial representative can help you decide.
CLASS I
o Higher front-end sales charges than Class II shares. There are several
ways to reduce these charges, as described below. There is no front-end
sales charge for purchases of $1 million or more.*
o Contingent Deferred Sales Charge on purchases of $1 million or more sold
within one year
o Lower annual expenses than Class II shares
CLASS II
o Lower front-end sales charges than Class I shares
o Contingent Deferred Sales Charge on purchases sold within 18 months
o Higher annual expenses than Class I shares
*If you are investing $1 million or more, it is generally more beneficial for
you to buy Class I shares because there is no front-end sales charge and the
annual expenses are lower. Therefore, ANY PURCHASE OF $1 MILLION OR MORE IS
AUTOMATICALLY INVESTED IN CLASS I SHARES. YOU MAY ACCUMULATE MORE THAN $1
MILLION IN CLASS II SHARES THROUGH PURCHASES OVER TIME. IF YOU PLAN TO DO THIS,
HOWEVER, YOU SHOULD DETERMINE IF IT WOULD BE BETTER FOR YOU TO BUY CLASS I
SHARES THROUGH A LETTER OF INTENT.
PURCHASE PRICE OF FUND SHARES
For Class I shares, the sales charge you pay depends on the dollar amount you
invest, as shown in the table below. The sales charge for Class II shares is 1%
and, unlike Class I, does not vary based on the size of your purchase.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE AMOUNT PAID
AS A PERCENTAGE OF TO DEALER AS A
---------------------------------
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
----------------------------------- ---------------- ---------------- --------------------
<S> <C> <C> <C>
CLASS I
Under $50,000..................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000.... 4.50% 4.71% 3.75%
$100,000 but less than $250,000... 3.50% 3.63% 2.80%
$250,000 but less than $500,000... 2.50% 2.56% 2.00%
$500,000 but less than
$1,000,000...................... 2.00% 2.04% 1.60%
$1,000,000 or more*............... None None None
CLASS II
Under $1,000,000*................. 1.00% 1.01% 1.00%
</TABLE>
*A Contingent Deferred Sales Charge of 1% may apply to Class I purchases of $1
million or more and any Class II purchase. Please see "How Do I Sell Shares? --
Contingent Deferred Sales Charge." Please also see "Other Payments to Securities
Dealers" below for a discussion of payments Distributors may make out of its own
resources to Securities Dealers for certain purchases. Purchases of Class II
shares are limited to purchases below $1 million. Please see "Choosing a Share
Class."
SALES CHARGE REDUCTIONS AND WAIVERS
IF YOU QUALIFY TO BUY SHARES UNDER ONE OF THE SALES CHARGE REDUCTION OR
WAIVER CATEGORIES DESCRIBED BELOW, PLEASE INCLUDE A WRITTEN STATEMENT WITH
EACH PURCHASE ORDER EXPLAINING WHICH PRIVILEGE APPLIES. If you don't include
this statement, we cannot guarantee that you will receive the sales charge
reduction or waiver.
CUMULATIVE QUANTITY DISCOUNTS -- CLASS I ONLY. To determine if you may pay a
reduced sales charge, the amount of your current Class I purchase is added to
the cost or current value, whichever is higher, of your existing shares in the
Franklin Templeton Funds, as well as those of your spouse, children under the
age of 21 and grandchildren under the age of 21. If you are the sole owner of a
company, you may also add any company accounts, including retirement plan
accounts. Companies with one or more retirement plans may add together the total
plan assets invested in the Franklin Templeton Funds to determine the sales
charge that applies.
LETTER OF INTENT -- CLASS I ONLY. You may buy Class I shares at a reduced sales
charge by completing the Letter of Intent section of the shareholder
application. A Letter of Intent is a commitment by you to invest a specified
dollar amount during a 13 month period. The amount you agree to invest
determines the sales charge you pay on Class I shares.
BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:
- - You authorize Distributors to reserve 5% of your total intended purchase in
Class I shares registered in your name until you fulfill your Letter.
- - You give Distributors a security interest in the reserved shares and appoint
Distributors as attorney-in-fact.
- - Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.
- - Although you may exchange your shares, you may not sell reserved shares until
you complete the Letter or pay the higher sales charge.
Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on the
reserved shares as you direct. Our policy of reserving shares does not apply to
certain retirement plans.
If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy, Sell and Exchange Shares? -- Letter of Intent" in the SAI or
call Shareholder Services.
GROUP PURCHASES -- CLASS I ONLY. If you are a member of a qualified group, you
may buy Class I shares at a reduced sales charge that applies to the group as a
whole. The sales charge is based on the combined dollar value of the group
members' existing investments, plus the amount of the current purchase.
A qualified group is one that:
- - Was formed at least six months ago,
- - Has a purpose other than buying Fund shares at a discount,
- - Has more than 10 members,
- - Can arrange for meetings between our representatives and group members,
- - Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to
Distributors,
- - Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and
- - Meets other uniform criteria that allow Distributors to achieve cost savings
in distributing shares.
SALES CHARGE WAIVERS. If one of the following sales charge waivers applies to
you or your purchase of Fund shares, you may buy shares of the Fund without a
front-end sales charge or a Contingent Deferred Sales Charge. All of the sales
charge waivers listed below apply to purchases of Class I shares only, except
for items 1 and 2 which also apply to Class II purchases.
Certain distributions, payments or redemption proceeds that you receive may be
used to buy shares of the Fund without a sales charge if you reinvest them
within 365 days of their payment or redemption date. They include:
1. Dividend and capital gain distributions from any Franklin Templeton Fund. The
distributions generally must be reinvested in the SAME CLASS of shares.
Certain exceptions apply, however, to Class II shareholders who chose to
reinvest their distributions in Class I shares of the Fund before November
17, 1997, and to Advisor Class or Class Z shareholders of a Franklin
Templeton Fund who may reinvest their distributions in Class I shares of the
Fund.
2. Redemption proceeds from the sale of shares of any Franklin Templeton Fund if
you originally paid a sales charge on the shares and you reinvest the money
in the SAME CLASS of shares. This waiver does not apply to exchanges.
If you paid a Contingent Deferred Sales Charge when you redeemed your shares
from a Franklin Templeton Fund, a Contingent Deferred Sales Charge will
apply to your purchase of Fund shares and a new Contingency Period will
begin. We will, however, credit your Fund account with additional shares
based on the Contingent Deferred Sales Charge you paid and the amount of
redemption proceeds that you reinvest.
If you immediately placed your redemption proceeds in a Franklin Bank CD,
you may reinvest them as described above. The proceeds must be reinvested
within 365 days from the date the CD matures, including any rollover.
3. Dividend or capital gain distributions from a real estate investment trust
(REIT) sponsored or advised by Franklin Properties, Inc.
4. Annuity payments received under either an annuity option or from death
benefit proceeds, only if the annuity contract offers as an investment option
the Franklin Valuemark Funds, the Templeton Variable Annuity Fund, or the
Templeton Variable Products Series Fund. You should contact your tax advisor
for information on any tax consequences that may apply.
5. Distributions from an existing retirement plan invested in the Franklin
Templeton Funds.
6. Redemption proceeds from the sale of Class A shares of any of the Templeton
Global Strategy Funds if you are a qualified investor.
If you paid a contingent deferred sales charge when you redeemed your Class
A shares from a Templeton Global Strategy Fund, a Contingent Deferred Sales
Charge will apply to your purchase of Fund shares and a new Contingency
Period will begin. We will, however, credit your Fund account with
additional shares based on the contingent deferred sales charge you paid
and the amount of the redemption proceeds that you reinvest.
If you immediately placed your redemption proceeds in a Franklin Templeton
money fund, you may reinvest them as described above. The proceeds must be
reinvested within 365 days from the date they are redeemed from the money
fund.
Various individuals and institutions also may buy Class I shares without a
front-end sales charge or Contingent Deferred Sales Charge, including:
1. Trust companies and bank trust departments agreeing to invest in Franklin
Templeton Funds over a 13 month period at least $1 million of assets held
in a fiduciary, agency, advisory, custodial or similar capacity and over
which the trust companies and bank trust departments or other plan
fiduciaries or participants, in the case of certain retirement plans, have
full or shared investment discretion. We will accept orders for these
accounts by mail accompanied by a check or by telephone or other means of
electronic data transfer directly from the bank or trust company, with
payment by federal funds received by the close of business on the next
business day following the order.
2. An Eligible Governmental Authority. Please consult your legal and investment
advisors to determine if an investment in the Fund is permissible and suitable
for you and the effect, if any, of payments by the Fund on arbitrage rebate
calculations.
3. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs
4. Registered Securities Dealers and their affiliates, for their investment
accounts only
5. Current employees of Securities Dealers and their affiliates and their family
members, as allowed by the internal policies of their employer
6. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies
7. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer
8. Accounts managed by the Franklin Templeton Group
9. Certain unit investment trusts and their holders reinvesting distributions
from the trusts
10. Group annuity separate accounts offered to retirement plans
11. Chilean retirement plans that meet the requirements described under
"Retirement Plans" below
RETIREMENT PLANS. Retirement plans that (i) are sponsored by an employer with at
least 100 employees, or (ii) have plan assets of $1 million or more, or (iii)
agree to invest at least $500,000 in the Franklin Templeton Funds over a 13
month period may buy Class I shares without a front-end sales charge. Retirement
plans that are not Qualified Retirement Plans or SEPs, such as 403(b) or 457
plans, must also meet the requirements described under "Group Purchases -- Class
I Only" above to be able to buy Class I shares without a front-end sales charge.
For retirement plan accounts opened on or after May 1, 1997, a Contingent
Deferred Sales Charge may apply if the account is closed within 365 days of the
retirement plan account's initial purchase in the Franklin Templeton Funds.
Please see "How Do I Sell Shares? -- Contingent Deferred Sales Charge" for
details.
Any retirement plan that does not meet the requirements to buy Class I shares
without a front-end sales charge and that was a shareholder of the Fund on or
before February 1, 1995, may buy shares of the Fund subject to a maximum sales
charge of 4% of the Offering Price, 3.2% of which will be retained by Securities
Dealers.
HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?
Your individual or employer-sponsored retirement plan may invest in the Fund.
Plan documents are required for all retirement plans. Trust Company can provide
the plan documents for you and serve as custodian or trustee.
Trust Company can provide you with brochures containing important information
about its plans. To establish a Trust Company retirement plan, you will need an
application other than the one included in this prospectus. For a retirement
plan brochure or application, call Retirement Plan Services.
Please consult your legal, tax or retirement plan specialist before choosing a
retirement plan. Your investment representative or advisor can help you make
investment decisions within your plan.
OTHER PAYMENTS TO SECURITIES DEALERS
The payments described below may be made to Securities Dealers who initiate and
are responsible for Class II purchases and certain Class I purchases made
without a sales charge. The payments are subject to the sole discretion of
Distributors, and are paid by Distributors or one of its affiliates and not by
the Fund or its shareholders.
1. Class II purchases -- up to 1% of the purchase price.
2. Class I purchases of $1 million or more -- up to 1% of the amount invested.
3. Class I purchases made without a front-end sales charge by certain retirement
plans described under "Sales Charge Reductions and Waivers -- Retirement
Plans" above -- up to 1% of the amount invested.
4. Class I purchases by trust companies and bank trust departments, Eligible
Governmental Authorities, and broker-dealers or others on behalf of clients
participating in comprehensive fee programs -- up to 0.25% of the amount
invested.
5. Class I purchases by Chilean retirement plans -- up to 1% of the amount
invested.
A Securities Dealer may receive only one of these payments for each qualifying
purchase. Securities Dealers who receive payments in connection with investments
described in paragraphs 1, 2 or 5 above or a payment of up to 1% for investments
described in paragraph 3 will be eligible to receive the Rule 12b-1 fee
associated with the purchase starting in the thirteenth calendar month after the
purchase.
FOR BREAKPOINTS THAT MAY APPLY AND INFORMATION ON ADDITIONAL COMPENSATION
PAYABLE TO SECURITIES DEALERS IN CONNECTION WITH THE SALE OF FUND SHARES, PLEASE
SEE "HOW DO I BUY, SELL AND EXCHANGE SHARES? -- OTHER PAYMENTS TO SECURITIES
DEALERS" IN THE SAI.
FOR INVESTORS OUTSIDE THE U.S.
The distribution of this prospectus and the offering of Fund shares may be
limited in many jurisdictions. An investor who wishes to buy shares of the Fund
should determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to obtain
information on the rules applicable to these transactions.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
If you own Class I shares, you may exchange into any of our money funds except
Franklin Templeton Money Fund II ("Money Fund II"). Money Fund II is the only
money fund exchange option available to Class II shareholders. Unlike our other
money funds, shares of Money Fund II may not be purchased directly and no drafts
(checks) may be written on Money Fund II accounts.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment objective
and policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have different
investment minimums. Some Franklin Templeton Funds do not offer Class II shares.
METHOD STEPS TO FOLLOW
---------------------- ------------------------------------------
BY MAIL 1. Send us signed written instructions
2. Include any outstanding share certificates
for the shares you want to exchange
---------------------- ------------------------------------------
BY PHONE Call Shareholder Services or TeleFACTS(R)
IF YOU DO NOT WANT THE ABILITY TO
EXCHANGE BY PHONE TO APPLY TO YOUR
ACCOUNT, PLEASE LET US KNOW.
---------------------- ------------------------------------------
THROUGH YOUR DEALER CALL YOUR INVESTMENT REPRESENTATIVE
---------------------- ------------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You generally will not pay a front-end sales charge on exchanges. If you have
held your shares less than six months, however, you will pay the percentage
difference between the sales charge you previously paid and the applicable sales
charge of the new fund. If you have never paid a sales charge on your shares
because, for example, they have always been held in a money fund, you will pay
the Fund's applicable sales charge no matter how long you have held your shares.
These charges may not apply if you qualify to buy shares without a sales charge.
We will not impose a Contingent Deferred Sales Charge when you exchange shares.
Any shares subject to a Contingent Deferred Sales Charge at the time of
exchange, however, will remain so in the new fund. See the discussion on
Contingent Deferred Sales Charges below and under "How Do I Sell Shares?"
CONTINGENT DEFERRED SALES CHARGE -- CLASS I. For accounts with Class I shares
subject to a Contingent Deferred Sales Charge, shares are exchanged into the new
fund in the order they were purchased. If you exchange Class I shares into one
of our money funds, the time your shares are held in that fund will not count
towards the completion of any Contingency Period.
CONTINGENT DEFERRED SALES CHARGE -- CLASS II. For accounts with Class II shares
subject to a Contingent Deferred Sales Charge, shares are exchanged into the new
fund proportionately based on the amount of shares subject to a Contingent
Deferred Sales Charge and the length of time the shares have been held. For
example, suppose you own $1,000 in shares that have never been subject to a
Contingent Deferred Sales Charge, such as shares from the reinvestment of
dividends and capital gains ("free shares"), $2,000 in shares that are no longer
subject to a Contingent Deferred Sales Charge because you have held them for
longer than 18 months ("matured shares"), and $3,000 in shares that are still
subject to a Contingent Deferred Sales Charge ("CDSC liable shares"). If you
exchange $3,000 into a new fund, $500 will be exchanged from free shares, $1,000
from matured shares, and $1,500 from CDSC liable shares.
Likewise, CDSC liable shares purchased at different times will be exchanged into
a new fund proportionately. For example, assume you purchased $1,000 in shares 3
months ago, 6 months ago, and 9 months ago. If you exchange $1,500 into a new
fund, $500 will be exchanged from shares purchased at each of these three
different times.
While Class II shares are exchanged proportionately, they are redeemed in the
order purchased. In some cases, this means exchanged shares may be CDSC liable
even though they would not be subject to a Contingent Deferred Sales Charge if
they were sold. The tax consequences of a sale or exchange are determined by the
Code and not by the method used by the Fund to transfer shares.
If you exchange your Class II shares for shares of Money Fund II, the time your
shares are held in that fund will count towards the completion of any
Contingency Period.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
- - You may only exchange shares within the SAME CLASS, except as noted below.
- - The accounts must be identically registered. You may, however, exchange shares
from a Fund account requiring two or more signatures into an identically
registered money fund account requiring only one signature for all transactions.
PLEASE NOTIFY US IN WRITING IF YOU DO NOT WANT THIS OPTION TO BE AVAILABLE ON
YOUR ACCOUNT. Additional procedures may apply. Please see "Transaction
Procedures and Special Requirements."
- - Trust Company IRA or 403(b) retirement plan accounts may exchange shares as
described above. Restrictions may apply to other types of retirement plans.
Please contact Retirement Plan Services for information on exchanges within
these plans.
- - The fund you are exchanging into must be eligible for sale in your state.
- - We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
- - Your exchange may be restricted or refused if you have: (i) requested an
exchange out of the Fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the Fund more than twice in a calendar quarter,
or (iii) exchanged shares equal to at least $5 million, or more than 1% of
the Fund's net assets. Shares under common ownership or control are combined
for these limits. If you have exchanged shares as described in this
paragraph, you will be considered a Market Timer. Each exchange by a Market
Timer, if accepted, will be charged $5.00. Some of our funds do not allow
investments by Market Timers.
Because excessive trading can hurt Fund performance, operations and
shareholders, we may refuse any exchange purchase if (i) we believe the Fund
would be harmed or unable to invest effectively, or (ii) the Fund receives or
anticipates simultaneous orders that may significantly affect the Fund.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
The Fund offers a class of shares designated "Advisor Class," which is described
in a separate prospectus. If you do not qualify to buy Advisor Class shares of
the Fund, but you own Advisor Class shares of another Franklin Templeton Fund,
you may exchange those Advisor Class shares for Class I shares of the Fund at
Net Asset Value. If you do so and you later decide you would like to exchange
into a fund that offers an Advisor Class, you may exchange your Class I shares
for Advisor Class shares of that fund. Certain shareholders of Class Z shares of
Franklin Mutual Series Fund Inc. may also exchange their Class Z shares for
Class I shares of the Fund at Net Asset Value.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
---------------------- ------------------------------------------------
BY MAIL 1. Send us signed written instructions. If
you would like your redemption proceeds
wired to a bank account, your instructions
should include:
o The name, address and telephone number
of the bank where you want the proceeds
sent
o Your bank account number
o The Federal Reserve ABA routing number
o If you are using a savings and loan or
credit union, the name of the
corresponding bank and the account number
2. Include any outstanding share certificates
for the shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts
may need to send additional documents.
Accounts under court jurisdiction may have
other requirements.
---------------------- ------------------------------------------------
BY PHONE Call Shareholder Services. If you would like
your redemption proceeds wired to a bank
account, other than an escrow account, you
must first sign up for the wire feature. To
sign up, send us written instructions, with a
signature guarantee. To avoid any delay in
processing, the instructions should include
the items listed in "By Mail" above.
Telephone requests will be accepted:
o If the request is $50,000 or less.
Institutional accounts may exceed $50,000
by completing a separate agreement. Call
Institutional Services to receive a copy.
o If there are no share certificates
issued for the shares you want to
sell or you have already returned
them to the Fund
o Unless you are selling shares in a Trust
Company retirement plan account
o Unless the address on your account was
changed by phone within the last 15 days
If you do not want the ability to
redeem by phone to apply to your account,
please let us know.
---------------------- ------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
---------------------- ------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the registered
owners on the account, send us written instructions signed by all account
owners, with a signature guarantee. We are not able to receive or pay out cash
in the form of currency.
The wiring of redemption proceeds is a special service that we make available
whenever possible for redemption requests of $1,000 or more. If we receive your
request in proper form before 4:00 p.m. Eastern time, your wire payment will be
sent the next business day. For requests received in proper form after 4:00 p.m.
Eastern time, the payment will be sent the second business day. By offering this
service to you, the Fund is not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the Fund nor its agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire is not processed as described in this section.
If you sell shares you recently purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS
To comply with IRS regulations, you need to complete additional forms before
selling shares in a Trust Company retirement plan account. Tax penalties
generally apply to any distribution from these plans to a participant under age
59 1/2, unless the distribution meets an exception stated in the Code. To obtain
the necessary forms, please call Retirement Plan Services.
CONTINGENT DEFERRED SALES CHARGE
For Class I purchases, if you did not pay a front-end sales charge because you
invested $1 million or more or agreed to invest $1 million or more under a
Letter of Intent, a Contingent Deferred Sales Charge may apply if you sell all
or a part of your investment within the Contingency Period. Once you have
invested $1 million or more, any additional Class I investments you make without
a sales charge may also be subject to a Contingent Deferred Sales Charge if they
are sold within the Contingency Period. For any Class II purchase, a Contingent
Deferred Sales Charge may apply if you sell the shares within the Contingency
Period. The charge is 1% of the value of the shares sold or the Net Asset Value
at the time of purchase, whichever is less.
Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class I shares without a front-end sales charge may also be
subject to a Contingent Deferred Sales Charge if the retirement plan account is
closed within 365 days of the account's initial purchase in the Franklin
Templeton Funds.
We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will redeem
shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated NUMBER OF SHARES, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.
WAIVERS. We waive the Contingent Deferred Sales Charge for:
- - Account fees
- - Sales of shares purchased without a front-end sales charge by certain
retirement plan accounts if (i) the account was opened before May 1, 1997,
or (ii) the Securities Dealer of record received a payment from Distributors
of 0.25% or less, or (iii) Distributors did not make any payment in
connection with the purchase, or (iv) the Securities Dealer of record has
entered into a supplemental agreement with Distributors
- - Redemptions by the Fund when an account falls below the minimum required
account size
- - Redemptions following the death of the shareholder or beneficial owner
- - Redemptions through a systematic withdrawal plan set up before February 1,
1995
- - Redemptions through a systematic withdrawal plan set up on or after February
1, 1995, at a rate of up to 1% a month of an account's Net Asset Value. For
example, if you maintain an annual balance of $1 million in Class I shares,
you can redeem up to $120,000 annually through a systematic withdrawal plan
free of charge. Likewise, if you maintain an annual balance of $10,000 in
Class II shares, $1,200 may be redeemed annually free of charge.
- - Distributions from individual retirement plan accounts due to death or
disability or upon periodic distributions based on life expectancy
- - Tax-free returns of excess contributions from employee benefit plans
- - Redemptions by Trust Company employee benefit plans or employee benefit
plans serviced by ValuSelect
- - Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee benefit
plans
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
The Fund intends to pay a dividend at least annually representing substantially
all of its net investment income and any net realized capital gains.
Dividends and capital gains are calculated and distributed the same way for each
class. The amount of any income dividends per share will differ, however,
generally due to the difference in the Rule 12b-1 fees of Class I and Class II.
Dividend payments are not guaranteed, are subject to the Board's discretion and
may vary with each payment. THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY
FIXED RATE OF RETURN ON AN INVESTMENT IN ITS SHARES.
If you buy shares shortly before the record date, please keep in mind that any
distribution will lower the value of the Fund's shares by the amount of the
distribution and you will then receive a portion of the price you paid back in
the form of a taxable distribution.
DISTRIBUTION OPTIONS
You may receive your distributions from the Fund in any of these ways:
1. BUY ADDITIONAL SHARES OF THE FUND -- You may buy additional shares of the
Fund (without a sales charge or imposition of a Contingent Deferred Sales
Charge) by reinvesting capital gain distributions, dividend distributions, or
both. This is a convenient way to accumulate additional shares and maintain or
increase your earnings base.
2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS -- You may direct your
distributions to buy shares of another Franklin Templeton Fund (without a sales
charge or imposition of a Contingent Deferred Sales Charge). Many shareholders
find this a convenient way to diversify their investments.
3. RECEIVE DISTRIBUTIONS IN CASH -- You may receive capital gain distributions,
dividend distributions, or both in cash. If you have the money sent to another
person or to a checking account, you may need a signature guarantee.
Distributions may be reinvested only in the same class of shares, except as
follows: (i) Class II shareholders who chose to reinvest their distributions in
Class I shares of the Fund or another Franklin Templeton Fund before November
17, 1997, may continue to do so; and (ii) Class II shareholders may reinvest
their distributions in shares of any Franklin Templeton money fund.
TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE SECTIONS 6 AND 7 OF THE
SHAREHOLDER APPLICATION INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT
REPRESENTATIVE WHICH OPTION YOU PREFER. IF YOU DO NOT SELECT AN OPTION, WE WILL
AUTOMATICALLY REINVEST DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS IN THE SAME CLASS
OF THE FUND. You may change your distribution option at any time by notifying us
by mail or phone. Please allow at least seven days before the record date for us
to process the new option. For Trust Company retirement plans, special forms are
required to receive distributions in cash.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
SHARE PRICE
When you buy shares, you pay the Offering Price. This is the Net Asset Value per
share of the class you wish to purchase, plus any applicable sales charges. When
you sell shares, you receive the Net Asset Value per share minus any applicable
Contingent Deferred Sales Charges.
The Net Asset Value we use when you buy or sell shares is the one next
calculated after we receive your transaction request in proper form. If you buy
or sell shares through your Securities Dealer, however, we will use the Net
Asset Value next calculated after your Securities Dealer receives your request,
which is promptly transmitted to the Fund. Your redemption proceeds will not
earn interest between the time we receive the order from your dealer and the
time we receive any required documents.
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share of each class as of the scheduled close of the NYSE,
generally 4:00 p.m. Eastern time. You can find the prior day's closing Net Asset
Value and Offering Price for each class in many newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. Each class, however,
bears the Rule 12b-1 fees payable under its Rule 12b-1 plan. To calculate Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The Fund's assets are
valued as described under "How Are Fund Shares Valued?" in the SAI.
PROPER FORM
An order to buy shares is in proper form when we receive your signed shareholder
application and check. Written requests to sell or exchange shares are in proper
form when we receive signed written instructions, with a signature guarantee if
necessary. We must also receive any outstanding share certificates for those
shares.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
- - Your name,
- - The Fund's name,
- - The class of shares,
- - A description of the request,
- - For exchanges, the name of the fund you are exchanging into,
- - Your account number,
- - The dollar amount or number of shares, and
- - A telephone number where we may reach you during the day, or in the evening if
preferred.
JOINT ACCOUNTS. For accounts with more than one registered owner, we accept
written instructions signed by only one owner for certain types of transactions
or account changes. These include transactions or account changes that you could
also make by phone, such as certain redemptions of $50,000 or less, exchanges
between identically registered accounts, and changes to the address of record.
For most other types of transactions or changes, written instructions must be
signed by all registered owners.
Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed by
all registered owners on the account.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You should be
able to obtain a signature guarantee from a bank, broker, credit union, savings
association, clearing agency, or securities exchange or association. A NOTARIZED
SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions and changes to your account by phone. Please
refer to the sections of this prospectus that discuss the transaction you would
like to make or call Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We may also record calls. If our lines
are busy or you are otherwise unable to reach us by phone, you may wish to ask
your investment representative for assistance or send us written instructions,
as described elsewhere in this prospectus.
For your protection, we may delay a transaction or not implement one if we are
not reasonably satisfied that the instructions are genuine. If this occurs, we
will not be liable for any loss. We also will not be liable for any loss if we
follow instructions by phone that we reasonably believe are genuine or if you
are unable to execute a transaction by phone.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS. We cannot accept instructions to sell
shares or change distribution options on Trust Company retirement plans by
phone. While you may exchange shares of Trust Company IRA and 403(b) retirement
accounts by phone, certain restrictions may be imposed on other retirement
plans.
To obtain any required forms or more information about distribution or transfer
procedures, please call Retirement Plan Services.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, we need you to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, we cannot accept instructions to change owners on the account unless ALL
owners agree in writing, even if the law in your state says otherwise. If you
would like another person or owner to sign for you, please send us a current
power of attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
--------------------------- ---------------------------------------
CORPORATION Corporate Resolution
--------------------------- ---------------------------------------
PARTNERSHIP 1. The pages from the partnership
agreement that identify the general
partners, or
2. A certification for a partnership
agreement
------------------------------ ---------------------------------------
TRUST 1. The pages from the trust document
that identify the trustees, or
2. A certification for trust
------------------------------ ---------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we cannot process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE
If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements and
other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions directly
from your dealer or representative, including instructions to exchange or redeem
your shares. Electronic instructions may be processed through established
electronic trading systems and programs used by the Fund. Telephone instructions
directly from your representative will be accepted unless you have told us that
you do not want telephone privileges to apply to your account.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $50. We will only do this
if the value of your account fell below this amount because you voluntarily sold
your shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to $100.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please refer to the shareholder application included with this
prospectus or contact your investment representative. The market value of the
Fund's shares may fluctuate and a systematic investment plan such as this will
not assure a profit or protect against a loss. You may discontinue the program
at any time by notifying Investor Services by mail or phone.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50. For retirement plans subject to
mandatory distribution requirements, the $50 minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account. Once your plan is established, any
distributions paid by the Fund will be automatically reinvested in your account.
You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if you
plan to buy shares on a regular basis. Shares sold under the plan may also be
subject to a Contingent Deferred Sales Charge. Please see "Contingent Deferred
Sales Charge" under "How Do I Sell Shares?"
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us in writing at
least seven business days before the end of the month preceding a scheduled
payment. Please see "How Do I Buy, Sell and Exchange Shares? -- Systematic
Withdrawal Plan" in the SAI for more information.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS(R) system (day or night) at
1-800/247-1753 to:
- - obtain information about your account;
- - obtain price and performance information about any Franklin Templeton Fund;
- - exchange shares between identically registered Franklin accounts; and
- - request duplicate statements and deposit slips for Franklin accounts.
You will need the code number for each class to use TeleFACTS(R). The code
number is 104 for Class I and 204 for Class II.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
- - Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. Please verify the
accuracy of your statements when you receive them.
- - Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household and
send only one copy of a report. Call Fund Information if you would like an
additional free copy of the Fund's financial reports.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more information,
call Institutional Services.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor Services
at 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, Florida 33733-8030. The
Fund and Distributors are also located at this address. Global Advisors is
located in Lyford Cay, Nassau, Bahamas. You may also contact us by phone at one
of the numbers listed below.
<TABLE>
<CAPTION>
HOURS OF OPERATION (EASTERN TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
-------------------------------- ------------------ -------------------------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 8:30 a.m. to 8:00 p.m.
Dealer Services 1-800/524-4040 8:30 a.m. to 8:00 p.m.
Fund Information 1-800/DIAL BEN 8:30 a.m. to 11:00 p.m.
(1-800/342-5236) 9:30 a.m. to 5:30 p.m. (Saturday)
Retirement Plan Services 1-800/527-2020 8:30 a.m. to 8:00 p.m.
Institutional Services 1-800/321-8563 9:00 a.m. to 8:00 p.m.
TDD (hearing impaired) 1-800/851-0637 8:30 a.m. to 8:00 p.m.
</TABLE>
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
<PAGE>
GLOSSARY
USEFUL TERMS AND DEFINITIONS
BOARD - The Board of Directors of the Company
CD - Certificate of deposit
CLASS I, CLASS II AND ADVISOR CLASS - The Fund offers three classes of shares,
designated "Class I," "Class II," and "Advisor Class." The three classes have
proportionate interests in the Fund's portfolio. They differ, however, primarily
in their sales charge and expense structures.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the contingency
period is 18 months. Regardless of when during the month you purchased shares,
they will age one month on the last day of that month and each following month.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
DEPOSITARY RECEIPTS - are certificates that give their holders the right to
receive securities (a) of a foreign issuer deposited in a U.S. bank or trust
company (American Depositary Receipts, "ADRs"); or (b) of a foreign or U.S.
issuer deposited in a foreign bank or trust company (Global Depositary Receipts,
"GDRs" or European Depositary Receipts, "EDRs").
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Directors."
ELIGIBLE GOVERNMENTAL AUTHORITY - Any state or local government or any
instrumentality, department, authority or agency thereof that has determined the
Fund is a legally permissible investment and that can only buy shares of the
Fund without paying sales charges.
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity
Fund, and Templeton Variable Products Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator
GLOBAL ADVISORS - Templeton Global Advisors Limited, the Fund's investment
manager
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
LETTER - Letter of Intent
MARKET TIMERS - Market Timers generally include market timing or asset
allocation services, accounts administered so as to buy, sell or exchange shares
based on predetermined market indicators, or any person or group whose
transactions seem to follow a timing pattern or whose transactions include
frequent or large exchanges.
MOODY'S - Moody's Investors Service, Inc.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
OFFERING PRICE - The public offering price is based on the Net Asset Value per
share of the class and includes the front-end sales charge. The maximum
front-end sales charge is 5.75% for Class I and 1% for Class II.
QUALIFIED RETIREMENT PLANS - An employer sponsored pension or profit-sharing
plan that qualifies under section 401 of the Code. Examples include 401(k),
money purchase pension, profit sharing and defined benefit plans.
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
SEP - An employer sponsored simplified employee pension plan established under
section 408(k) of the Code
TELEFACTS(R) - FRANKLIN TEMPLETON'S AUTOMATED CUSTOMER SERVICING SYSTEM
TRUST COMPANY - Franklin Templeton Trust Company. Trust Company is an affiliate
of Distributors and both are wholly owned subsidiaries of Resources.
U.S. - United States
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
<PAGE>
INSTRUCTIONS AND IMPORTANT NOTICE
SUBSTITUTE W-9 INSTRUCTIONS INFORMATION
GENERAL. Backup withholding is not an additional tax. Rather, the tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the IRS.
OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer
Identification Number or you do not know your SSN/TIN, you must obtain Form SS-5
or Form SS-4 from your local Social Security or IRS office and apply for one. If
you have checked the "Awaiting TIN" box and signed the certification,
withholding will apply to payments relating to your account unless you provide a
certified TIN within 60 days.
WHAT SSN/TIN TO GIVE. Please refer to the following guidelines:
<TABLE>
<CAPTION>
ACCOUNT TYPE GIVE SSN OF ACCOUNT TYPE GIVE EMPLOYER ID # OF
--------------------------- -------------- --------------------- --------------------------
<S> <C> <C> <C>
o Individual Individual o Trust, Estate, Trust, Estate, or
or Pension Plan Pension Plan Trust
Trust
--------------------------- -------------- --------------------- --------------------------
o Joint Individual Owner who o Corporation, Corporation,
will be Partnership, or Partnership, or
paying tax other other organization
or organization
first-named
individual
--------------------------- -------------- --------------------- --------------------------
o Unif. Gift/ Minor o Broker nominee Broker nominee
Transfer to Minor
--------------------------- -------------- --------------------- --------------------------
o Sole Proprietor Owner of
business
--------------------------- -------------- --------------------- --------------------------
o Legal Guardian Ward,
Minor, or
Incompetent
--------------------------- -------------- --------------------- --------------------------
</TABLE>
EXEMPT RECIPIENTS. Please provide your TIN and check the "Exempt Recipient" box
if you are an exempt recipient. Exempt recipients
include:
A corporation An organization exempt from
tax under section 501(a), or an
A financial institution individual retirement plan
A registered dealer in securities An exempt charitable remainder
or commodities registered in trust or a non-exempt trust
the U.S. or a U.S.possession described in section 4947(a)(1)
A real estate investment trust An entity registered at all times
under the Investment Company
A common trust fund operated Act of 1940
by a bank under section 584(a)
IRS PENALTIES. If you do not supply us with your SSN/TIN, you will be subject to
an IRS $50 penalty unless your failure is due to reasonable cause and not
willful neglect. If you fail to report certain income on your federal income tax
return, you will be treated as negligent and subject to an IRS 20% penalty on
any underpayment of tax attributable to such negligence, unless there was
reasonable cause for the resulting underpayment and you acted in good faith. If
you falsify information on this form or make any other false statement resulting
in no backup withholding on an account which should be subject to backup
withholding, you may be subject to an IRS $500 penalty and certain criminal
penalties including fines and imprisonment.
SUBSTITUTE W-8 INSTRUCTIONS INFORMATION
EXEMPT FOREIGN PERSON. Check the "Exempt Foreign Person" box if you qualify as a
non-resident alien or foreign entity that is not subject to certain U.S.
information return reporting or to backup withholding rules. Dividends paid to
your account may be subject to withholding of up to 30%. You are an "Exempt
Foreign Person" if you are not (1) a citizen or resident of the U.S., or (2) a
U.S. corporation, partnership, estate, or trust. In the case of an individual,
an "Exempt Foreign Person" is one who has been physically present in the U.S.
for less than 31 days during the current calendar year. An individual who is
physically present in the U.S. for at least 31 days during the current calendar
year will still be treated as an "Exempt Foreign Person," provided that the
total number of days physically present in the current calendar year and the two
preceding calendar years does not exceed 183 days (counting all of the days in
the current calendar year, only one-third of the days in the first preceding
calendar year and only one-sixth of the days in the second preceding calendar
year). In addition, lawful permanent residents or green card holders may not be
treated as "Exempt Foreign Persons." If you are an individual or an entity, you
must not now be, or at this time expect to be, engaged in a U.S. trade or
business with respect to which any gain derived from transactions effected by
the Fund/Payer during the calendar year is effectively connected to the U.S. (or
your transactions are exempt from U.S. taxes under a tax treaty).
PERMANENT ADDRESS. The Shareholder Application must contain your permanent
address if you are an "Exempt Foreign Person." If you are an individual, provide
your permanent address. If you are a partnership or corporation, provide the
address of your principal office. If you are an estate or trust, provide the
address of your permanent residence or the principal office of any fiduciary.
NOTICE OF CHANGE IN STATUS. If you become a U.S. citizen or resident after you
have provided certification of your foreign status, or if you cease to be an
"Exempt Foreign Person," you must notify the Fund/Payer within 30 days of your
change in status. Reporting will then begin on the account(s) listed, and backup
withholding may also begin unless you certify to the Fund/Payer that (1) the
taxpayer identification number you have given is correct, and (2) the Internal
Revenue Service has not notified you that you are subject to backup withholding
because you failed to report certain interest or dividend income. You may use
Form W-9, "Payer's Request for Taxpayer Identification Number and
Certification," to make these certifications. If an account is no longer active,
you do not have to notify a Fund/Payer or broker of your change in status unless
you also have another account with the same Fund/Payer that is still active. If
you receive interest from more than one Fund/Payer or have dealings with more
than one broker or barter exchange, file a certificate with each. If you have
more than one account with the same Fund/Payer, the Fund/Payer may require you
to file a separate certificate for each account.
WHEN TO FILE. File these certifications with the Fund before a payment is made
to you, unless you have already done this in either of the two preceding
calendar years.
HOW OFTEN YOU MUST FILE. This certificate generally remains in effect for three
calendar years. A Fund/Payer or broker, however, may require that a new
certificate be filed each time a payment is made. On joint accounts for which
each joint owner is a foreign person, each must provide a certification of
foreign status.
<PAGE>
RESOLUTION SUPPORTING AUTHORITY OF
CORPORATE /ASSOCIATION SHAREHOLDER
- ------------------------------------------------------------------------------
INSTRUCTION:
It will be necessary for corporate/association shareholders to provide a
certified copy of a resolution or other certificate of authority supporting the
authority of designated officers of the corporation/association to issue oral
and written instruction on behalf of the corporation/association for the
purchase, sale (redemption), transfer and/or exchange of Franklin Templeton Fund
shares. You may use the following form of resolution or you may prefer to use
your own.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he/she is the duly elected
_______________________ of _______________________ a _______________________
Title Corporate Name Type of Organization
organized under the laws of the State of _________________ and that the
State
following is a true and correct copy of a resolution adopted by the Board of
Directors by unanimous written consent (a copy of which is attached) or at a
meeting duly called and held on ______________________________, 19__.
"RESOLVED, that _____________________________________________
Name of Corporation/Association
(the "Company") is authorized to invest the Company's assets in one or more
investment companies (mutual funds) whose shares are distributed by
Franklin/Templeton Distributors, Inc. ("Distributors"). Each such
investment company, or series thereof, is referred to as a "Franklin
Templeton Fund" or "Fund."
FURTHER RESOLVED, that any (enter number) _________________ of the following
officers of this Company (acting alone, if one, or acting together, if more
than one) is/are authorized to issue oral or written instructions (including
the signing of drafts in the case of draft accessed money fund accounts) on
behalf of the Company for the purchase, sale (redemption), transfer and/or
exchange of Fund shares and to execute any Fund application(s) and
agreements pertaining to Fund shares registered or to be registered to the
Company (referred to as a "Company Instruction"); and, that this authority
shall continue until Franklin/Templeton Investor Services, Inc. ("Investor
Services") receives written notice of revocation or amendment delivered by
registered mail. The Company's officers authorized to act on behalf of the
Company under this resolution are (enter officer titles
only):___________________________________________________________________
(referred to as the "Authorized Officers").
FURTHER RESOLVED, that Investor Services may rely on the most recently
provided incumbency certificate delivered by the Company to Investor
Services to identify those individuals who are the incumbent Authorized
Officers and that Investor Services shall have no independent duty to
determine if there has been any change in the individuals serving as
incumbent Authorized Officers.
FURTHER RESOLVED, that the Company ("Indemnitor") undertakes and agrees to
indemnify and hold harmless Distributors, each affiliate of Distributors,
each Franklin Templeton Fund and their officers, employees and agents
(referred to hereafter collectively as the "Indemnitees") from and against
any and all liability, loss, suits, claims, costs, damages and expenses of
whatever amount and whatever nature (including without limitation reasonable
attorneys' fees, whether for consultation and advice or representation in
litigation at both the trial and appellate level) any indemnitee may sustain
or incur by reason of, in consequence of, or arising from or in connection
with any action taken or not taken by an Indemnitee in good faith reliance
on a Company Instruction given as authorized under this resolution."
The undersigned further certifies that the below named persons, whose signatures
appear opposite their names, are the incumbent Authorized Officers (as that term
is defined in the above resolution) who have been duly elected to the office
identified beside their name(s) (attach additional list if necessary).
X
Name/title (please print or type) Signature
X
Name/title (please print or type) Signature
X
Name/title (please print or type) Signature
X
Name/title (please print or type) Signature
Certified from minutes
X
Signature
- --------------------------------------------------------------------------------
Name/title (please print or type)
CORPORATE SEAL (if appropriate)
<PAGE>
This page intentionally left blank.
<PAGE>
FRANKLIN TEMPLETON GROUP OF FUNDS
LITERATURE REQUEST E CALL 1-800/DIAL BEN (1-800/342-5236) today for a free
descriptive brochure and prospectus on any of the funds listed below. The
prospectus contains more complete information, including fees, charges and
expenses, and should be read carefully before investing or sending money.
GLOBAL GROWTH
Franklin Global Health Care Fund
Franklin Templeton Japan Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller
Companies Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller
Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
Franklin Templeton German
Government Bond Fund
Franklin Templeton
Global Currency Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and Income
Fund
GLOBAL INCOME
Franklin Global Government
Income Fund
Franklin Templeton Hard
Currency Fund
Franklin Templeton High
Income Currency Fund
Templeton Americas
Government Securities Fund
GROWTH
Franklin Biotechnology
Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap
Growth Fund
Franklin Small Cap Growth Fund
Mutual Discovery Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet
Investment Fund
Franklin Convertible Securities Fund
Franklin Equity Income
Fund
Franklin Income Fund
Franklin MicroCap Value Fund
Franklin Natural
Resources Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends
Fund
Franklin Strategic Income Fund
Franklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
Templeton American Trust, Inc.
FUND ALLOCATOR SERIES
Franklin Templeton
Conservative Target Fund
Franklin Templeton
Moderate Target Fund
Franklin Templeton
Growth Target Fund
INCOME
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin's AGE High Income Fund
Franklin Investment
Grade Income Fund
Franklin Short-Intermediate U.S.
Government Securities Fund
Franklin U.S. Government
Securities Fund
Franklin Money Fund
Franklin Federal Money Fund
FOR CORPORATIONS
Franklin Corporate Qualified
Dividend Fund
FRANKLIN FUNDS SEEKING
TAX-FREE INCOME
Federal Intermediate-Term
Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free Income Fund
Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC FUNDS
SEEKING TAX-FREE INCOME
Alabama
Arizona*
Arkansas**
California*
Colorado
Connecticut
Florida*
Georgia
Hawaii**
Indiana
Kentucky
Louisiana
Maryland
Massachusetts***
Michigan*
Minnesota***
Missouri
New Jersey
New York*
North Carolina
Ohio***
Oregon
Pennsylvania
Tennessee**
Texas
Virginia
Washington**
VARIABLE ANNUITIES+
Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).
**The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
***Portfolio of insured municipal securities.
+Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued by
Allianz Life Insurance Company of North America or by its wholly owned
subsidiary, Preferred Life Insurance Company of New York, and distributed by
NALAC Financial Plans, LLC.
104 P 01/98
FGF09/97 [LOGO] Printed on recycled paper TL104 P
<PAGE>
----------------
TEMPLETON BULK RATE
FOREIGN FUND U.S. Postage
PAID
P.O. Box 33031 Sacramento, CA
ST. PETERSBURG, FL 33733-8031 Permit No. 333
----------------
104 P 01/98
TL104 P.. [LOGO] Printed on recycled paper
<PAGE>
PART A
TEMPLETON FOREIGN FUND
ADVISOR CLASS
PROSPECTUS
<PAGE>
PROSPECTUS & APPLICATION
INVESTMENT STRATEGY:
GLOBAL GROWTH Templeton
Foreign
Fund
ADVISOR CLASS
---------------------------------
JANUARY 1, 1998
[LOGO FRANKLIN TEMPLETON]
- -----------------------------------------------------------------------------
This prospectus describes the Advisor Class shares of Templeton Foreign Fund
(the "Fund"). It contains information you should know before investing in the
Fund. Please keep it for future reference.
The Fund currently offers other classes of shares with different sales charge
and expense structures, which affect performance. These classes are described in
a separate prospectus. For more information, contact your investment
representative or call 1-800/DIAL BEN.
The Fund is a diversified series of Templeton Funds, Inc. (the "Company"), an
open-end management investment company. The Company has a Statement of
Additional Information ("SAI") for its Advisor Class, dated January 1, 1998,
which may be amended from time to time. It includes more informationabout the
Fund's procedures and policies. It has been filed with the SEC and is
incorporated by reference into this prospectus. For a free copy or a larger
print version of this prospectus, call 1-800/DIAL BEN.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S.
GOVERNMENT. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TEMPLETON
FOREIGN FUND
- ----------------------------------------------------------------------------
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES
REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM DISTRIBUTORS.
<PAGE>
TEMPLETON FOREIGN FUND -- ADVISOR CLASS
- ------------
January 1, 1998
When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section.
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary............................ 2
Financial Highlights....................... 3
How Does the Fund Invest Its Assets?....... 3
What Are the Risks of Investing in the Fund? 6
Who Manages the Fund?...................... 8
How Does the Fund Measure Performance?..... 10
How Taxation Affects the Fund and Its Shareholders 10
How Is the Fund Organized?................. 15
ABOUT YOUR ACCOUNT
How Do I Buy Shares?....................... 16
May I Exchange Shares for Shares of Another Fund? 17
How Do I Sell Shares?...................... 19
What Distributions Might I Receive From the Fund? 21
Transaction Procedures and Special Requirements 22
Services to Help You Manage Your Account... 27
What If I Have Questions About My Account?. 29
GLOSSARY
Useful Terms and Definitions............... 30
100 Fountain Parkway
P.O. Box 33030
St. Petersburg, FL
33733-8030
1-800/DIAL BEN
<PAGE>
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
Fund. It is based on the historical expenses of the Advisor Class for the period
from January 2, 1997 (commencement of sales) through August 31, 1997. The
expenses are annualized. The Fund's actual expenses may vary.
.
A. SHAREHOLDER TRANSACTION EXPENSES(+)
Maximum Sales Charge Imposed on Purchases NONE
Exchange Fee (per transaction) $5.00*
B. ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.61%
Rule 12b-1 Fees NONE
Other Expenses 0.22%
-----
Total Fund Operating Expenses 0.83%
======
C. EXAMPLE
Assume the annual return for the class is 5%, operating expenses are as
described above, and you sell your shares after the These are the projected
expenses for each $1,000 that you invest in the Fund.
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
- ----------------------- ------------------------ ----------------------- -------------
<S> <C> <C> <C>
$ 8 $ 26 $ 46 $ 103
</TABLE>
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund pays its operating expenses. The effects of these expenses are
reflected in its Net Asset Value or dividends and are not directly charged
to your account.
(+)IF YOUR TRANSACTION IS PROCESSED THROUGH YOUR SECURITIES DEALER, YOU MAY BE
CHARGED A FEE BY YOUR SECURITIES DEALER FOR THIS SERVICE.
*$5.00 FEE IS ONLY FOR MARKET TIMERS. WE PROCESS ALL OTHER EXCHANGES WITHOUT A
FEE.
FINANCIAL HIGHLIGHTS
This table summarizes the financial history of the Fund's Advisor Class. The
information has been audited by McGladrey & Pullen, LLP, the Fund's independent
auditors. Their audit report covering the period shown below appears in the
financial statements in the Fund's Annual Report to Shareholders for the fiscal
year ended August 31, 1997. The Annual Report to Shareholders also includes more
information about the Fund's performance. For a free copy, please call Fund
Information.
<PAGE>
<TABLE>
<CAPTION>
ADVISOR CLASS SHARES
PERIOD ENDED AUGUST 31 1997(1)
------------------------------------------------------- -----------------------------
<S> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period..... $ 10.26
-----------
Income from investment operations:
Net investment income.................. .07
Net realized and unrealized gains...... 1.09
-----------
Total from investment operations......... 1.16
-----------
Net asset value, end of period........... $ 11.42
===========
Total return(2).......................... 11.31%
Ratios/Supplemental Data:
Net assets, end of period (000).......... $ 139,100
Ratios to average net assets:
Expenses............................... .83%(3)
Net investment income.................. 3.37%(3)
Portfolio turnover rate.................. 37.28%
Average commission rate paid(4).......... $ .0005
</TABLE>
(1)FOR THE PERIOD FROM JANUARY 2, 1997 (COMMENCEMENT OF SALES) THROUGH AUGUST
31, 1997.
(2)TOTAL RETURN IS NOT ANNUALIZED.
(3)ANNUALIZED.
(4)RELATES TO PURCHASES AND SALES OF EQUITY SECURITIES.
HOW DOES THE FUND INVEST ITS ASSETS?
WHAT IS THE FUND'S GOAL?
The investment goal of the Fund is long-term capital growth. This goal is
fundamental which means that it may not be changed without shareholder approval.
WHAT KINDS OF SECURITIES DOES THE FUND PURCHASE?
The Fund tries to achieve its investment goal by a flexible policy of investing
in the equity and debt securities of companies and governments outside the U.S.
EQUITY SECURITIES generally entitle the holder to participate in a company's
general operating results. These include common stock; preferred stock;
convertible securities; warrants or rights. The Fund's primary investments are
in common stock.
In selecting these equity securities, Global Advisors does a company-by- company
analysis, rather than focusing on a specific industry or economic sector. Global
Advisors concentrates primarily on the market price of a company's securities
relative to its view regarding the company's long-term earnings potential. A
company's historical value measures, including price/ earnings ratios, profit
margins and liquidation value, will also be considered.
DEBT SECURITIES represent an obligation of the issuer to repay a loan of money
to it, and generally, provide for the payment of interest. These include bonds,
notes and debentures; commercial paper; time deposits; bankers' acceptances; and
structured investments which are described more fully in the SAI.
The Fund may buy both rated and unrated debt securities. Independent rating
organizations rate debt securities based upon their assessment of the financial
soundness of the issuer. Generally, a lower rating indicates higher risk. The
Fund may buy debt securities which are rated Caa by Moody's or CCC by S&P or
better; or unrated debt which it determines to be of comparable quality. At
present, the Fund does not intend to invest more than 5% of its total assets in
non-investment grade securities (rated lower than BBB by S&P or Baa by Moody's).
Please see the SAI for more details on the risks associated with lower-rated
securities.
DEPOSITARY RECEIPTS. The Fund may also invest in American, European and Global
Depositary Receipts. Depositary Receipts are certificates typically issued by a
bank or trust company that give their holders the right to receive securities
issued by a foreign or domestic corporation.
GENERAL. The Fund may invest up to 5% of its total assets in securities issued
by any one company or foreign government. The Fund may invest any amount of its
assets in U.S. government securities. The Fund may invest in any industry
although it will not concentrate (invest more than 25% of its total assets) in
any one industry. The Fund may invest up to 15% of its total assets in foreign
securities that are not listed on a recognized U.S. or foreign securities
exchange, including up to 10% of its total assets in securities with a limited
trading market.
Please see the SAI for more details on the types of securities in which the Fund
invests.
WHAT ARE SOME OF THE FUND'S OTHER INVESTMENT STRATEGIES AND PRACTICES?
TEMPORARY INVESTMENTS. When Global Advisors believes that the securities trading
markets or the economy are experiencing excessive volatility or a prolonged
general decline, or other adverse conditions exist, it may invest the Fund's
portfolio in a temporary defensive manner. Under such circumstances, the Fund
may invest up to 100% of its assets in: (1) U.S. government securities; (2) bank
time deposits denominated in the currency of any major nation; (3) commercial
paper rated A-1 by S&P or Prime-1 by Moody's or, if unrated, issued by a company
which, at the date of investment, had an outstanding debt issue rated AAA or AA
by S&P or Aaa or Aa by Moody's; and (4) repurchase agreements with banks and
broker-dealers.
REPURCHASE AGREEMENTS. The Fund will generally have a portion of its assets in
cash or cash equivalents for a variety of reasons including waiting for a
special investment opportunity or taking a defensive position. To earn income on
this portion of its assets, the Fund may enter into repurchase agreements with
certain banks and broker-dealers. Under a repurchase agreement, the Fund agrees
to buy a U.S. government security from one of these issuers and then to sell the
security back to the issuer after a short period of time (generally, less than
seven days) at a higher price. The bank or broker-dealer must transfer to the
Fund's custodian securities with an initial value of at least 102% of the dollar
amount invested by the Fund in each repurchase agreement.
SHORT-TERM TRADING AND PORTFOLIO TURNOVER. The Fund invests for long-term
capital growth and does not intend to emphasize short-term trading profits. It
is anticipated, therefore, that the Fund's annual portfolio turnover rate
generally will be below 50%; although this rate may be higher or lower, in
relation to market conditions. A portfolio turnover rate of less than 50% means
that in a one year period, less than one-half of the Fund's portfolio is
changed.
OTHER POLICIES AND RESTRICTIONS. The Fund has a number of additional investment
restrictions that govern its activities. Some of these restrictions may only be
changed with shareholder approval and some may be changed by the Board alone.
For a list of these restrictions and more information about the Fund's
investment policies, including those described above, and their associated
risks, please see "How Does the Fund Invest Its Assets?" and "Investment
Restrictions" in the SAI.
The policies and restrictions discussed in this prospectus and in the SAI are
applied at the time the Fund makes an investment. The Fund is generally not
required to sell a security because of a change in circumstances.
WHAT ARE THE RISKS OF INVESTING IN THE FUND?
GENERAL RISK. There is no assurance that the Fund's investment goal will be met.
The Fund will seek to spread investment risk by diversifying its investments but
the possibility of losses remains. Generally, if the securities owned by the
Fund increase in value, the value of the shares of the Fund which you own will
increase. Similarly, if the securities owned by the Fund decrease in value, the
value of your shares will also decline. In this way, you participate in any
change in the value of the securities owned by the Fund.
FOREIGN SECURITIES RISK. The value of foreign (and U.S.) securities is affected
by general economic conditions and individual company and industry earnings
prospects. While foreign securities may offer significant opportunities for
gain, they also involve additional risks that can increase the potential for
losses in the Fund. These risks can be significantly greater for investments in
emerging markets. Investments in Depositary Receipts also involve some or all of
the risks described below.
The political, economic and social structures of some countries in which the
Fund invests may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the imposition
of exchange controls, expropriation, restrictions on removal of currency or
other assets, nationalization of assets, and punitive taxes.
There may be less publicly available information about a foreign company or
government than about a U.S. company or public entity. Certain countries'
financial markets and services are less developed than those in the U.S. or
other major economies. As a result, they may not have uniform accounting,
auditing and financial reporting standards and may have less government
supervision of financial markets. Foreign securities markets may have
substantially lower trading volumes than U.S. markets, resulting in less
liquidity and more volatility than experienced in the U.S. Transaction costs on
foreign securities markets are generally higher than in the U.S. The settlement
practices may be cumbersome and result in delays that may affect portfolio
liquidity. The Fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies and obtaining judgments with respect
to foreign investments in foreign courts than with respect to domestic issuers
in U.S. courts.
Some of the countries in which the Fund may invest such as Russia and certain
Asian and Eastern European countries are considered developing or emerging
markets. Investments in these markets are subject to all of the risks of foreign
investing generally, and have additional and heightened risks due to a lack of
legal, business and social frameworks to support securities markets.
Emerging markets involve additional significant risks, including political and
social uncertainty (for example, regional conflicts and risk of war), currency
exchange rate volatility, pervasiveness of corruption and crime, delays in
settling portfolio transactions and risk of loss arising out of the system of
share registration and custody. The Fund may invest up to 100% of its total
assets in emerging markets, including up to 5% of its total assets in Russian
securities. For more information on the risks associated with emerging markets
securities, please see the SAI.
On July 1, 1997, Hong Kong reverted to the sovereignty of China. As with any
major political transfer of power, this could result in political, social,
economic, market or other developments in Hong Kong, China or other countries
that could affect the value of Fund investments.
MARKET, CURRENCY, AND INTEREST RATE RISK. General market movements in any
country where the Fund has investments are likely to affect the value of the
securities which the Fund owns in that country and the Fund's share price may
also be affected. The Fund's investments may be denominated in foreign
currencies so that changes in foreign currency exchange rates will also affect
the value of what the Fund owns, and thus the price of its shares. To the extent
the Fund invests in debt securities, changes in interest rates in any country
where the Fund is invested will affect the value of the Fund's portfolio and,
consequently, its share price. Rising interest rates, which often occur during
times of inflation or a growing economy, are likely to cause the face value of a
debt security to decrease, having a negative effect on the value of the Fund's
shares. Of course, individual and worldwide stock markets, interest rates and
currency valuations have both increased and decreased, sometimes very
dramatically, in the past. These changes are likely to occur again in the future
at unpredictable times.
CREDIT AND ISSUER RISK. The Fund's investments in debt securities involve credit
risk. This is the risk that the issuer of a debt security will be unable to make
principal and interest payments in a timely manner and the debt security will go
into default. The Fund may invest up to 10% of its total assets in defaulted
debt securities. The purchase of defaulted debt securities involves significant
additional risks, such as the possibility of complete loss of the investment in
the event the issuer does not restructure or reorganize to enable it to resume
paying interest and principal to holders.
WHO MANAGES THE FUND?
THE BOARD. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations. The
Board also monitors the Fund to ensure no material conflicts exist among the
Fund's classes of shares. While none is expected, the Board will act
appropriately to resolve any material conflict that may arise.
INVESTMENT MANAGER. Global Advisors manages the Fund's assets and makes its
investment decisions. Global Advisors also performs similar services for other
funds. It is wholly owned by Resources, a publicly owned company engaged in the
financial services industry through its subsidiaries. Charles B. Johnson and
Rupert H. Johnson, Jr. are the principal shareholders of Resources. Together,
Global Advisors and its affiliates manage over $223 billion in assets. The
Templeton organization has been investing globally since 1940. Global Advisors
and its affiliates have offices in Argentina, Australia, Bahamas, Canada,
France, Germany, Hong Kong, India, Italy, Japan, Korea, Luxembourg, Poland,
Russia, Singapore, South Africa, Taiwan, United Kingdom, U.S. and Vietnam.
Please see "Investment Management and Other Services" and "Miscellaneous
Information" in the SAI for information on securities transactions and a summary
of the Fund's Code of Ethics.
PORTFOLIO MANAGEMENT. The Fund's lead portfolio manager since 1987 is Mark G.
Holowesko. Mr. Holowesko is president of Global Advisors. He holds a BA in
economics from Holy Cross College and an MBA from Babson College. He is a
Chartered Financial Analyst, Chartered Investment Counselor, and a founding
member of the International Society of Financial Analysts. Prior to joining the
Templeton organization in 1985, Mr. Holowesko worked with RoyWest Trust
Corporation (Bahamas) Limited as an investment analyst. His duties at RoyWest
included managing trust and individual accounts, as well as equity market
research worldwide. Mr. Holowesko is responsible for coordinating equity
research and portfolio management activities worldwide for the Templeton Global
Equity Group and managing several mutual funds.
Jeffrey A. Everett and Richard Sean Farrington have secondary portfolio
management responsibilities for the Fund. Mr. Everett is an executive vice
president of Global Advisors. He holds a BS in finance from Pennsylvania State
University and is also a Chartered Financial Analyst. Prior to joining the
Templeton organization in 1989, Mr. Everett was an investment officer at First
Pennsylvania Investment Research, a division of First Pennsylvania Corporation,
where he analyzed equity and convertible securities. He also coordinated
research for Centre Square Investment Group, the pension management subsidiary
of First Pennsylvania Corporation. Mr. Everett is responsible for managing
several offshore accounts at Templeton, as well as several Templeton funds. His
global research responsibilities encompass industry coverage for real estate and
country responsibilities for Italy and Australia. Mr. Farrington is a vice
president of Global Advisors. He holds a BA in economics from Harvard
University. Mr. Farrington is a Chartered Financial Analyst. He has served as
the president of the Bahamas Society of Financial Analysts and is currently on
the board of the International Society of Financial Analysts. He joined the
Templeton organization in 1991 and is a research analyst and portfolio manager.
Mr. Farrington's research responsibilities include global coverage of electrical
equipment industries, as well as international electric utilities. He is also
responsible for country coverage of Hong Kong, China and Taiwan.
MANAGEMENT FEES. During the period ended August 31, 1997, management fees
totaling 0.61% of the average daily net assets of the Fund were paid to Global
Advisors. Total expenses, including fees paid to Global Advisors, were 0.83% of
the average daily net assets of Advisor Class.
PORTFOLIO TRANSACTIONS. Global Advisors tries to obtain the best execution on
all transactions. If Global Advisors believes more than one broker or dealer can
provide the best execution, it may consider research and related services and
the sale of Fund shares, as well as shares of other funds in the Franklin
Templeton Group of Funds, when selecting a broker or dealer. Please see "How
does the Fund Buy Securities for its Portfolio?" in the SAI for more
information.
ADMINISTRATIVE SERVICES. FT Services provides certain administrative services
and facilities for the Fund. During the period ended August 31, 1997,
administration fees totaling 0.08% of the average daily net assets of the Fund
were paid to FT Services. These fees are included in the amount of total
expenses shown above. Please see "Investment Management and Other Services" in
the SAI for more information.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, the Advisor Class of the Fund advertises its performance. A
commonly used measure of performance is total return.
Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested.
The investment results of the Advisor Class will vary. Performance figures are
always based on past performance and do not guarantee future results. For a more
detailed description of how the Fund calculates its performance figures, please
see "How does the Fund Measure Performance?" in the SAI.
HOW TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
ON AUGUST 5, 1997, PRESIDENT CLINTON SIGNED INTO LAW THE TAXPAYER RELIEF ACT OF
1997 (THE "1997 ACT"). THIS NEW LAW MAKES SWEEPING CHANGES IN THE CODE. BECAUSE
MANY OF THESE CHANGES ARE COMPLEX, THEY ARE DISCUSSED IN THE SAI.
HOW DOES THE FUND EARN INCOME AND GAINS?
The Fund earns interest and dividends (the Fund's "income") on its investments.
When the Fund sells a security for a price that is higher than it paid, it has a
gain. When the Fund sells a security for a price that is lower than it paid, it
has a loss. If the Fund has held the security for more than one year, the gain
or loss will be a long-term capital gain or loss. If the Fund has held the
security for one year or less, the gain or loss will be a short-term capital
gain or loss. The Fund's gains and losses are netted together, and, if the Fund
has a net gain (the Fund's "gains"), that gain will generally be distributed to
you.
TAXATION OF THE FUND'S INVESTMENTS. The Fund invests your money in the bonds,
stocks and other securities that are described in the section "How Does the Fund
Invest Its Assets?" Special tax rules may apply in determining the income and
gains the Fund earns on its investments. These rules may, in turn, affect the
amount of distributions that the Fund pays to you. These special tax rules are
discussed in the SAI.
TAXATION OF THE FUND. As a regulated investment company, the Fund generally pays
no federal income tax on the income and gains that it distributes to you.
FOREIGN TAXES. Foreign governments may impose taxes on the income and gains from
the Fund's investments in foreign stocks and bonds. These taxes will reduce the
amount of the Fund's distributions to you. The Fund may also invest in the
securities of foreign companies that are "passive foreign investment companies"
("PFICs"). These investments in PFICs may cause the Fund to pay income taxes and
interest charges. If possible, the Fund will not invest in PFICs or will adopt
other strategies to avoid these taxes and charges.
TAXATION OF SHAREHOLDERS
WHAT IS A DISTRIBUTION?
As a shareholder, you will Fund's income and gains on its investments in bonds,
stocks and other securities. The Fund's income and short-term capital gains are
paid to you as ordinary dividends. The Fund's long-term capital gains are paid
to you as capital gain distributions. If the Fund pays you an amount in excess
of its income and gains, this excess will generally be treated as a non-taxable
distribution. These amounts, taken together, are what we call the Fund's
distributions to you.
DISTRIBUTIONS. Distributions from the Fund, whether you receive them in cash or
in additional shares, are generally subject to income tax. The Fund will send
you a statement in January of the current year showing the ordinary dividends,
capital gain distributions and non-taxable distributions you received from the
Fund in the prior year. The amounts on this statement will include distributions
declared in December of the prior year, and paid to you in January of the
current year. These distributions are taxable as if you had received them on
December 31 of the prior year. The IRS requires you to report these amounts on
your income tax return for the prior year.
The Fund's statement for the prior year will tell you how much of your capital
gain distribution represents 28% rate gain, or 25% rate gain, if applicable. The
remainder of the capital gain distribution, after subtracting out these amounts,
represents 20% rate gain.
DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your qualified
retirement plan, such as a Section 401(k) plan or IRA, are generally
tax-deferred; this means that you are not required to report Fund distributions
on your income tax return when paid to your plan, but, rather, when your plan
makes payments to you.
DIVIDENDS-RECEIVED DEDUCTION. Either none or only a small portion of the Fund's
distributions will quality for the corporate dividends-received deduction.
WHAT IS A REDEMPTION?
A redemption is a sale by you to the Fund of some or all of your shares in the
Fund. The price per share you receive when you redeem Fund shares may be more or
less than the price at which you purchased those shares. An exchange of shares
in the Fund for shares of another Franklin Templeton Fund is treated as a
redemption of Fund shares and then a purchase of shares of the other Fund. When
you redeem or exchange your shares, you will generally have a gain or loss,
depending upon whether the basis in your shares is more or less than your cost
or other basis in the shares. Call Fund Information at 1-800-342-5236 for a free
Shareholder Tax Information Handbook if you need more information in calculating
the gain or loss on the redemption or exchange of your shares.
REDEMPTIONS AND EXCHANGES. If you redeem your shares or if you exchange your
shares in the Fund for shares in another Franklin Templeton Fund, you will
generally have a gain or loss that the IRS requires you to report on your income
tax return. If you exchange Fund shares held for 90 days or less and pay no
sales charge or a reduced sales charge for the new shares, all or a portion of
the sales charge you paid on the purchase of the shares you exchanged is not
included in their cost for purposes of computing gain or loss on the exchange.
If you hold your shares for six months or less, any loss you have will be
treated as a long-term capital loss to the extent of any capital gains
distributions received by you from the Fund. All or a portion of any loss on the
redemption or exchange of your shares will be disallowed by the IRS if you
purchase other shares in the Fund within 30 days before or after your redemption
or exchange.
WHAT IS A FOREIGN TAX CREDIT?
A foreign tax credit is a tax credit for the amount of taxes imposed by a
foreign country on earnings of the Fund. When a foreign company in which the
Fund invests pays a dividend to the Fund, the dividend will generally be subject
to a withholding tax. The taxes withheld in foreign countries create credits
that you may use to offset your U.S. federal income tax.
FOREIGN TAXES. If more than 50% of the value of the Fund's assets consists of
foreign securities, the Fund may elect to pass-through to you the amount of
foreign taxes it paid. If the Fund makes this election, your year-end statement
will show more taxable income than was actually distributed to you. However, you
will be entitled to either deduct your share of such taxes in computing your
taxable income or claim a foreign tax credit for such taxes against your U.S.
federal income tax. Your year-end statement, showing the amount of deduction or
credit available to you, will be distributed to you in January along with other
shareholder information records including your Fund Form 1099-DIV.
The 1997 Act includes a provision that allows you to claim these credits
directly on your income tax return (Form 1040) and eliminates the previous
requirement that you complete a detailed supporting form. To qualify, you must
have $600 or less in joint return foreign taxes ($300 or less on a single
return), all of which are reported to you on IRS Form 1099-DIV. THIS SIMPLIFIED
PROCEDURE APPLIES ONLY FOR CALENDAR YEARS 1998 AND BEYOND, AND IS NOT AVAILABLE
IN 1997.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S. income
tax withholding. Your home country may also tax ordinary dividends, capital gain
distributions and gains arising from redemptions or exchanges of your Fund
shares. Fund shares held by the estate of a non-U.S. investor may be subject to
U.S. estate tax. You may wish to contact your tax advisor to determine the U.S.
and non-U.S. tax consequences of your investment in the Fund.
STATE TAXES. Ordinary dividends and capital gain distributions that you receive
from the Fund as well as gains arising from redemptions or exchanges of your
Fund shares will generally be subject to state and local income tax. The holding
of Fund shares may also be subject to state and local intangibles taxes. You may
wish to contact your tax advisor to determine the state and local tax
consequences of your investment in the Fund.
WHAT IS A BACKUP WITHHOLDING?
Backup withholding occurs when the Fund is required to withhold and pay over to
the IRS 31% of your distributions and redemption proceeds. You can avoid backup
withholding by providing the Fund with your TIN, and by completing the tax
certifications on your account application that you were asked to sign when you
opened your account. However, if the IRS instructs the Fund to begin backup
withholding, it is required to do so even if you provided the Fund with your TIN
and these tax certifications, and backup withholding will remain in place until
the Fund is instructed by the IRS that it is no longer required.
BACKUP WITHHOLDING. When you open an account, IRS regulations require that you
provide your taxpayer identification number ("TIN"), certify that it is correct,
and certify that you are not subject to backup withholding under IRS rules. If
you fail to provide a correct TIN or the proper tax certifications, the Fund is
required to withhold 31% of all the distributions (including ordinary dividends
and capital gain distributions) and redemption proceeds paid to you. The Fund is
also required to begin backup withholding on your account if the IRS instructs
the Fund to do so. The Fund reserves the right not to open youraccount or,
alternatively, to redeem your shares at the current net asset value, less any
taxes withheld, if you fail to provide a correct TIN, fail to provide the proper
tax certifications, or the IRS instructs the Fund to begin backup withholding on
your account.
THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE FUND. A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS IS CONTAINED IN THE SECTION
ENTITLED "ADDITIONAL INFORMATION ABOUT DISTRIBUTIONS AND TAXES" IN THE SAI. THE
TAX TREATMENT OF DISTRIBUTIONS OF ORDINARY DIVIDENDS, CAPITAL GAIN
DISTRIBUTIONS, FOREIGN TAXES PAID, AND INCOME TAXES WITHHELD IS ALSO DISCUSSED
IN A FREE SHAREHOLDER TAX INFORMATION HANDBOOK, AVAILABLE FROM FUND INFORMATION
AT 1-800-342-5236.
HOW IS THE FUND ORGANIZED?
The Fund is a diversified series of the Company, an open-end management
investment company, commonly called a mutual fund. The Company was
organized as a Maryland corporation on August 15, 1977, and is registered
with the SEC. As of January 1, 1997, the Fund began offering a new class of
shares designated Templeton Foreign Fund -- Advisor Class. All shares
outstanding before the offering of Advisor Class shares have been
designated Templeton Foreign Fund -- Class I and Templeton Foreign Fund --
Class II. Additional series and classes of shares may be offered in the
future.
Shares of each class represent proportionate interests in the assets of the Fund
and have the same voting and other rights and preferences as any other class of
the Fund for matters that affect the Fund as a whole. For matters that only
affect one class, however, only shareholders of that class may vote. Each class
will vote separately on matters affecting only that class, or expressly required
to be voted on separately by state or federal law. Shares of each class of a
series have the same voting and other rights and preferences as the other
classes and series of the Company for matters that affect the Company as a
whole.
The Company has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Company does not intend to hold annual shareholder meetings. The Company or
a series of the Company may hold special meetings, however, for matters
requiring shareholder approval. A meeting may also be called by the Board in its
discretion or for the purpose of considering the removal of a Board member if
requested in writing to do so by shareholders holding at least 10% of the
outstanding shares. In certain circumstances, we are required to help you
communicate with other shareholders about the removal of a Board member.
<PAGE>
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
Shares of the Fund may be purchased without a sales charge. To open your
account, contact your investment representative or complete and sign the
enclosed shareholder application and return it to the Fund with your check.
MINIMUM
INVESTMENTS*
- ------------------------------------------------- -----------------
To Open Your Account...................... None
To Add to Your Account.................... $ 25
*Certain investors may be subject to different minimums as described below. We
may also refuse any order to buy shares.
The Fund's Advisor Class shares are only available to:
1. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs
2. Qualified registered investment advisors or certified financial planners who
have clients invested in the Franklin Mutual Series Fund Inc. on October 31,
1996, or who buy through a broker-dealer or service agent who has entered
into an agreement with Distributors
3. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group and their immediate family
members, subject to a $100 minimum investment requirement
4. Accounts managed by the Franklin Templeton Group
5. The Franklin Templeton Profit Sharing 401(k) Plan
6. Each series of the Franklin Templeton Fund Allocator Series, subject to a
$1,000 minimum initial and subsequent investment requirement
PAYMENTS TO SECURITIES DEALERS
Securities Dealers who initiate and are responsible for purchases of Advisor
Class shares may receive up to 0.25% of the amount invested. The payment is
subject to the sole discretion of Distributors, and is paid by Distributors or
one of its affiliates and not by the Fund or its shareholders.
For information on additional compensation payable to Securities Dealers in
connection with the sale of Fund shares, please see "How Do I Buy, Sell and
Exchange Shares? -- Other Payments to Securities Dealers" in the SAI.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment objective
and policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and some do not offer Advisor
Class shares.
<TABLE>
<CAPTION>
METHOD STEPS TO FOLLOW
- ------------------------------- -----------------------------------------------
<S> <C>
BY MAIL 1. Send us signed written instructions
2. Include any outstanding share certificates
for the shares you want to exchange
- ------------------------------- ---------------------------------------------
BY PHONE Call Shareholder Services
If you do not want the ability to
exchange by phone to apply to your
account, please let us know.
- ------------------------------- ------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
</TABLE>
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
- - You may only exchange shares within the SAME CLASS, except as noted below.
- - The accounts must be identically registered. You may, however, exchange shares
from a Fund account requiring two or more signatures into an identically
registered money fund account requiring only one signature for all transactions.
PLEASE NOTIFY US IN WRITING IF YOU DO NOT WANT THIS OPTION TO BE AVAILABLE ON
YOUR ACCOUNT. Additional procedures may apply. Please see "Transaction
Procedures and Special Requirements."
- - The fund you are exchanging into must be eligible for sale in your state.
- - We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
- - Your exchange may be restricted or refused if you have: (i) requested an
exchange out of the Fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the Fund more than twice in a calendar quarter,
or (iii) exchanged shares equal to at least $5 million, or more than 1% of
the Fund's net assets. Shares under common ownership or control are combined
for these limits. If you have exchanged shares as described in this
paragraph, you will be considered a Market Timer. Each exchange by a Market
Timer, if accepted, will be charged $5.00. Some of our funds do not allow
investments by Market Timers.
Because excessive trading can hurt Fund performance, operations and
shareholders, we may refuse any exchange purchase if (i) we believe the Fund
would be harmed or unable to invest effectively, or (ii) the Fund receives or
anticipates simultaneous orders that may significantly affect the Fund.
LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
If you want to exchange into a fund that does not currently offer an Advisor
Class, you may exchange your Advisor Class shares for Class I shares of that
fund at Net Asset Value. If you do so and you later decide you would like to
exchange into a fund that offers an Advisor Class, you may exchange your Class I
shares for Advisor Class shares of that fund. You may also exchange your Advisor
Class shares for Class Z shares of Franklin Mutual Series Fund Inc.
<PAGE>
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
<TABLE>
<CAPTION>
METHOD STEPS TO FOLLOW
- ------------------------------------ ----------------------------------------------------
<S> <C>
BY MAIL 1. Send us signed written instructions. If
you would like your redemption
proceeds wired to a bank account,
your instructions should include:
o The name, address and telephone number of
the bank where you want the proceeds sent
o Your bank account number
o The Federal Reserve ABA routing number
o If you are using a savings and loan or
credit union, the name of the corresponding
bank and the account number
2. Include any outstanding share certificates
for the shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts
may need to send additional documents.
Accounts under court jurisdiction may have
other requirements.
- ------------------------------------ -----------------------------------------------------
BY PHONE Call Shareholder Services. If you would
like your redemption proceeds wired to a bank
account, other than an escrow account, you
must first sign up for the wire feature. To
sign up, send us written instructions, with a
signature guarantee. To avoid any delay in
processing, the instructions should include
the items listed in "By Mail" above.
Telephone requests will be accepted:
o If the request is $50,000 or less.
Institutional accounts may exceed $50,000 by
completing a separate agreement. Call
Institutional Services to receive a copy.
o If there are no share certificates issued
for the shares you want to sell or you have
already returned them to the Fund
o Unless the address on your account was
changed by phone within the last 15 days
If you do not want the ability to redeem
by phone to apply to your account, please let
us know.
- ------------------------------------ -----------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- ------------------------------------ -----------------------------------------------------
</TABLE>
We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the registered
owners on the account, send us written instructions signed by all account
owners, with a signature guarantee. We are not able to receive or pay out cash
in the form of currency.
The wiring of redemption proceeds is a special service that we make available
whenever possible for redemption requests of $1,000 or more. If we receive your
request in proper form before 4:00 p.m. Eastern time, your wire payment will be
sent the next business day. For requests received in proper form after 4:00 p.m.
Eastern time, the payment will be sent the second business day. By offering this
service to you, the Fund is not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the Fund nor its agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire is not processed as described in this section.
If you sell shares you recently purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
The Fund intends to pay a dividend at least annually representing substantially
all of its net investment income and any net realized capital gains.
Dividend payments are not guaranteed, are subject to the Board's discretion and
may vary with each payment. THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY
FIXED RATE OF RETURN ON AN INVESTMENT IN ITS SHARES.
If you buy shares shortly before the record date, please keep in mind that any
distribution will lower the value of the Fund's shares by the amount of the
distribution and you will then receive a portion of the price you paid back in
the form of a taxable distribution.
DISTRIBUTION OPTIONS
You may receive your distributions from the Fund in any of these ways:
1. BUY ADDITIONAL SHARES OF THE FUND -- You may buy additional shares of the
same class of the Fund by reinvesting capital gain distributions, dividend
distributions, or both. This is a convenient way to accumulate additional shares
and maintain or increase your earnings base.
2. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS -- You may direct your
distributions to buy the same class of shares of another Franklin Templeton
Fund. You may also direct your distributions to buy Class I shares of another
Franklin Templeton Fund. Many shareholders find this a convenient way to
diversify their investments.
3. RECEIVE DISTRIBUTIONS IN CASH -- You may receive capital gain distributions,
dividend distributions, or both in cash. If you have the money sent to another
person or to a checking account, you may need a signature guarantee.
TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE SECTIONS 6 AND 7 OF THE
SHAREHOLDER APPLICATION INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT
REPRESENTATIVE WHICH OPTION YOU PREFER. IF YOU DO NOT SELECT AN OPTION, WE WILL
AUTOMATICALLY REINVEST DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS IN THE SAME CLASS
OF THE FUND. You may change your distribution option at any time by notifying us
by mail or phone. Please allow at least seven days before the record date for us
to process the new option.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
SHARE PRICE
You buy and sell Advisor Class shares at the Net Asset Value per share. The Net
Asset Value we use when you buy or sell shares is the one next calculated after
we receive your transaction request in proper form. If you buy or sell shares
through your Securities Dealer, however, we will use the Net Asset Value next
calculated after your Securities Dealer receives your request, which is promptly
transmitted to the Fund. Your redemption proceeds will not earn interest between
the time we receive the order from your dealer and the time we receive any
required documents.
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share as of the scheduled close of the NYSE, generally 4:00 p.m.
Eastern time. You can find the prior day's closing Net Asset Value in many
newspapers.
The Net Asset Value of all outstanding shares of each class is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
Fund, determined by the value of the shares of each class. To calculate Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The Fund's assets are
valued as described under "How are Fund Shares Valued?" in the SAI.
PROPER FORM
An order to buy shares is in proper form when we receive your signed shareholder
application and check. Written requests to sell or exchange shares are in proper
form when we receive signed written instructions, with a signature guarantee if
necessary. We must also receive any outstanding share certificates for those
shares.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
- - Your name,
- - The Fund's name,
- - The class of shares,
- - A description of the request,
- - For exchanges, the name of the fund you are exchanging into,
- - Your account number,
- - The dollar amount or number of shares, and
- - A telephone number where we may reach you during the day, or in the evening
if preferred.
JOINT ACCOUNTS. For accounts with more than one registered owner, we accept
written instructions signed by only one owner for certain types of transactions
or account changes. These include transactions or account changes that you could
also make by phone, such as certain redemptions of $50,000 or less, exchanges
between identically registered accounts, and changes to the address of record.
For most other types of transactions or changes, written instructions must be
signed by all registered owners.
Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed by
all registered owners on the account.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature. You should be
able to obtain a signature guarantee from a bank, broker, credit union, savings
association, clearing agency, or securities exchange or association. A NOTARIZED
SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions and changes to your account by phone. Please
refer to the sections of this prospectus that discuss the transaction you would
like to make or call Shareholder Services.
When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We may also record calls. If our lines
are busy or you are otherwise unable to reach us by phone, you may wish to ask
your investment representative for assistance or send us written instructions,
as described elsewhere in this prospectus.
For your protection, we may delay a transaction or not implement one if we are
not reasonably satisfied that the instructions are genuine. If this occurs, we
will not be liable for any loss. We also will not be liable for any loss if we
follow instructions by phone that we reasonably believe are genuine or if you
are unable to execute a transaction by phone.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, we need you to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, we cannot accept instructions to change owners on the account unless ALL
owners agree in writing, even if the law in your state says otherwise. If you
would like another person or owner to sign for you, please send us a current
power of attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- --------------------------------- --------------------------------------------
CORPORATION Corporate Resolution
- --------------------------------- ---------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement
that identify the general partners, or
2. A certification for a partnership
agreement
- --------------------------------- --------------------------------------------
TRUST 1. The pages from the trust document that
identify the trustees, or
2. A certification for trust
- --------------------------------- --------------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we cannot process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE
If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements and
other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions directly
from your dealer or representative, including instructions to exchange or redeem
your shares. Electronic instructions may be processed through established
electronic trading systems and programs used by the Fund. Telephone instructions
directly from your representative will be accepted unless you have told us that
you do not want telephone privileges to apply to your account.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $50. We will only do this
if the value of your account fell below this amount because you voluntarily sold
your shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to $100.
These minimums do not apply if you fall within categories 4, 5 or 6 under "How
Do I Buy Shares? -- Opening Your Account."
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please refer to the shareholder application included with this
prospectus or contact your investment representative. The market value of the
Fund's shares may fluctuate and a systematic investment plan such as this will
not assure a profit or protect against a loss. You may discontinue the program
at any time by notifying Investor Services by mail or phone.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50. For retirement plans subject to
mandatory distribution requirements, the $50 minimum will not apply.
If you would like to establish a systematic withdrawal plan, please complete the
systematic withdrawal plan section of the shareholder application included with
this prospectus and indicate how you would like to receive your payments. You
may choose to direct your payments to buy the same class of shares of another
Franklin Templeton Fund or have the money sent directly to you, to another
person, or to a checking account. Once your plan is established, any
distributions paid by the Fund will be automatically reinvested in your account.
You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us in writing at
least seven business days before the end of the month preceding a scheduled
payment. Please see "How Do I Buy, Sell and Exchange Shares? -- Systematic
Withdrawal Plan" in the SAI for more information.
TELEFACTS(R)
From a touch-tone phone, you may call our TeleFACTS(R) system (day or night) at
1-800/247-1753 to:
- - obtain information about your account; and
- - obtain price information about any Franklin Templeton Fund.
You will need the Fund's code number to use TeleFACTS(R). The Fund's code number
is 621.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
- - Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. Please verify the
accuracy of your statements when you receive them.
- - Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household and
send only one copy of a report. Call Fund Information if you would like an
additional free copy of the Fund's financial reports.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more information,
call Institutional Services.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor Services
at 100 Fountain Parkway, P.O. Box 33030, St. Petersburg, Florida 33733-8030. The
Fund and Distributors are also located at this address. Global Advisors is
located in Lyford Cay, Nassau, Bahamas. You may also contact us by phone at one
of the numbers listed below.
<PAGE>
<TABLE>
<CAPTION>
HOURS OF OPERATION (EASTERN TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
<S> <C> <C>
------------------------------------ ------------------------ -------------------------------------------------
Shareholder Services 1-800/632-2301 8:30 a.m. to 8:00 p.m.
Dealer Services 1-800/524-4040 8:30 a.m. to 8:00 p.m.
Fund Information 1-800/DIAL BEN 8:30 a.m. to 11:00 p.m.
(1-800/342-5236) 9:30 a.m. to 5:30 p.m. (Saturday)
Retirement Plan Services 1-800/527-2020 8:30 a.m. to 8:00 p.m.
Institutional Services 1-800/321-8563 9:00 a.m. to 8:00 p.m.
TDD (hearing impaired) 1-800/851-0637 8:30 a.m. to 8:00 p.m
</TABLE>
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
<PAGE>
GLOSSARY
USEFUL TERMS AND DEFINITIONS
BOARD - The Board of Directors of the Company
CD - Certificate of deposit
CLASS I, CLASS II AND ADVISOR CLASS - The Fund offers three classes of shares,
designated "Class I," "Class II," and "Advisor Class." The three classes have
proportionate interests in the Fund's portfolio. They differ, however, primarily
in their sales charge and expense structures.
CODE - Internal Revenue Code of 1986, as amended
DEPOSITARY RECEIPTS - are certificates that give their holders the right to
receive securities (a) of a foreign issuer deposited in a U.S. bank or trust
company (American Depositary Receipts, "ADRs"); or (b) of a foreign or U.S.
issuer deposited in a foreign bank or trust company (Global Depositary Receipts,
"GDRs" or European Depositary Receipts, "EDRs").
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Directors."
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity
Fund, and Templeton Variable Products Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R)and the Templeton
Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator
GLOBAL ADVISORS - Templeton Global Advisors Limited, the Fund's investment
manager
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
MARKET TIMERS - Market Timers generally include market timing or asset
allocation services, accounts administered so as to buy, sell or exchange shares
based on predetermined market indicators, or any person or group whose
transactions seem to follow a timing pattern or whose transactions include
frequent or large exchanges.
MOODY'S - Moody's Investors Service, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation
NYSE - New York Stock Exchange
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TELEFACTS(R) - FRANKLIN TEMPLETON'S AUTOMATED CUSTOMER SERVICING SYSTEM
U.S. - United States
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
<PAGE>
INSTRUCTIONS AND IMPORTANT NOTICE
SUBSTITUTE W-9 INSTRUCTIONS INFORMATION
GENERAL. Backup withholding is not an additional tax. Rather, the tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the IRS.
OBTAINING A NUMBER. If you do not have a Social Security Number/Taxpayer
Identification Number or you do not know your SSN/TIN, you must obtain Form SS-5
or Form SS-4 from your local Social Security or IRS office and apply for one. If
you have checked the "Awaiting TIN" box and signed the certification,
withholding will apply to payments relating to your account unless you provide a
certified TIN within 60 days.
WHAT SSN/TIN TO GIVE. Please refer to the following guidelines:
<TABLE>
<CAPTION>
ACCOUNT TYPE GIVE SSN OF ACCOUNT TYPE GIVE EMPLOYER ID # OF
- ------------------------------------ ------------------ ----------------------- ------------------------------
<S> <C> <C> <C>
o Individual Individual o Trust, Estate, Trust, Estate, or
or Pension Plan Pension Plan Trust
Trust
- ------------------------------------ ------------------ ----------------------- ------------------------------
o Joint Individual Owner who o Corporation, Corporation,
will be Partnership, or Partnership, or
paying tax other organization other organization
or
first-named
individual
- ------------------------------------ ------------------ ----------------------- ------------------------------
o Unif. Gift/ Minor o Broker nominee Broker nominee
Transfer to Minor
- ------------------------------------ ------------------ ----------------------- ------------------------------
o Sole Proprietor Owner of
business
- ------------------------------------ ------------------ ----------------------- ------------------------------
o Legal Guardian Ward,
Minor, or
Incompetent
- ------------------------------------ ------------------ ----------------------- ------------------------------
</TABLE>
EXEMPT RECIPIENTS. Please provide your TIN and check the "Exempt Recipient" box
if you are an exempt recipient. Exempt recipients include:
<PAGE>
A corporation An organization exempt from
tax under section 501(a), or an
Afinancial institution individual retirement plan
A registered dealer in securities An exempt charitable remainder
or commodities registered in trust or a non-exempt trust
the U.S. or a U.S. possession described in section 4947(a)(1)
A real estate investment trust An entity registered at all times
under the Investment Company
Act of 1940
A common trust fund operated
by a bank under section 584(a)
<
<PAGE>
IRS PENALTIES. If you do not supply us with your SSN/TIN, you will be subject to
an IRS $50 penalty unless your failure is due to reasonable cause and not
willful neglect. If you fail to report certain income on your federal income tax
return, you will be treated as negligent and subject to an IRS 20% penalty on
any underpayment of tax attributable to such negligence, unless there was
reasonable cause for the resulting underpayment and you acted in good faith. If
you falsify information on this form or make any other false statement resulting
in no backup withholding on an account which should be subject to backup
withholding, you may be subject to an IRS $500 penalty and certain criminal
penalties including fines and imprisonment.
SUBSTITUTE W-8 INSTRUCTIONS INFORMATION
EXEMPT FOREIGN PERSON. Check the "Exempt Foreign Person" box if you qualify as a
non-resident alien or foreign entity that is not subject to certain U.S.
information return reporting or to backup withholding rules. Dividends paid to
your account may be subject to withholding of up to 30%. You are an "Exempt
Foreign Person" if you are not (1) a citizen or resident of the U.S., or (2) a
U.S. corporation, partnership, estate, or trust. In the case of an individual,
an "Exempt Foreign Person" is one who has been physically present in the U.S.
for less than 31 days during the current calendar year. An individual who is
physically present in the U.S. for at least 31 days during the current calendar
year will still be treated as an "Exempt Foreign Person," provided that the
total number of days physically present in the current calendar year and the two
preceding calendar years does not exceed 183 days (counting all of the days in
the current calendar year, only one-third of the days in the first preceding
calendar year and only one-sixth of the days in the second preceding calendar
year). In addition, lawful permanent residents or green card holders may not be
treated as "Exempt Foreign Persons." If you are an individual or an entity, you
must not now be, or at this time expect to be, engaged in a U.S. trade or
business with respect to which any gain derived from transactions effected by
the Fund/Payer during the calendar year is effectively connected to the U.S. (or
your transactions are exempt from U.S. taxes under a tax treaty).
PERMANENT ADDRESS. The Shareholder Application must contain your permanent
address if you are an "Exempt Foreign Person." If you are an individual, provide
your permanent address. If you are a partnership or corporation, provide the
address of your principal office. If you are an estate or trust, provide the
address of your permanent residence or the principal office of any fiduciary.
NOTICE OF CHANGE IN STATUS. If you become a U.S. citizen or resident after you
have provided certification of your foreign status, or if you cease to be an
"Exempt Foreign Person," you must notify the Fund/Payer within 30 days of your
change in status. Reporting will then begin on the account(s) listed, and backup
withholding may also begin unless you certify to the Fund/Payer that (1) the
taxpayer identification number you have given is correct, and (2) the Internal
Revenue Service has not notified you that you are subject to backup withholding
because you failed to report certain interest or dividend income. You may use
Form W-9, "Payer's Request for Taxpayer Identification Number and
Certification," to make these certifications. If an account is no longer active,
you do not have to notify a Fund/Payer or broker of your change in status unless
you also have another account with the same Fund/Payer that is still active. If
you receive interest from more than one Fund/Payer or have dealings with more
than one broker or barter exchange, file a certificate with each. If you have
more than one account with the same Fund/Payer, the Fund/Payer may require you
to file a separate certificate for each account.
WHEN TO FILE. File these certifications with the Fund before a payment is made
to you, unless you have already done this in either of the two preceding
calendar years.
HOW OFTEN YOU MUST FILE. This certificate generally remains in effect for three
calendar years. A Fund/Payer or broker, however, may require that a new
certificate be filed each time a payment is made. On joint accounts for which
each joint owner is a foreign person, each must provide a certification of
foreign status.
<PAGE>
RESOLUTION SUPPORTING AUTHORITY OF
CORPORATE /ASSOCIATION SHAREHOLDER
- -------------------------------------------------------------------------------
INSTRUCTION:
It will be necessary for corporate/association shareholders to provide a
certified copy of a resolution or other certificate of authority supporting the
authority of designated officers of the corporation/association to issue oral
and written instruction on behalf of the corporation/association for the
purchase, sale (redemption), transfer and/or exchange of Franklin Templeton Fund
shares. You may use the following form of resolution or you may prefer to use
your own.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he/she is the duly elected
___________________ of _________________ a
Title Corporate Name
________________ organized under the laws of the State of ________________ and
Type of Organization State
that the following is a true and correct copy of a resolution adopted by the
Board of Directors by unanimous written consent (a copy of which is attached) or
at a meeting duly called and held on _________________________, 19 __.
"RESOLVED, that__________________________________________________________
Name of Corporation/Association
(the "Company") is authorized to invest the Company's assets in one or more
investment companies (mutual funds) whose shares are distributed by
Franklin/Templeton Distributors, Inc. ("Distributors"). Each such
investment company, or series thereof, is referred to as a "Franklin
Templeton Fund" or "Fund."
FURTHER RESOLVED, that any (enter number) of the following officers of this
Company (acting alone, if one, or acting together, if more than one) is/are
authorized to issue oral or written instructions (including the signing of
drafts in the case of draft accessed money fund accounts) on behalf of the
Company for the purchase, sale (redemption), transfer and/or exchange of
Fund shares and to execute any Fund application(s) and agreements
pertaining to Fund shares registered or to be registered to the Company
(referred to as a "Company Instruction"); and, that this authority shall
continue until Franklin/Templeton Investor Services, Inc. ("Investor
Services") receives written notice of revocation or amendment delivered by
registered mail. The Company's officers authorized to act on behalf of the
Company under this resolution are (enter officer titles
only):___________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
(referred to as the "Authorized Officers").
FURTHER RESOLVED, that Investor Services may rely on the most recently
provided incumbency certificate delivered by the Company to Investor
Services to identify those individuals who are the incumbent Authorized
Officers and that Investor Services shall have no independent duty to
determine if there has been any change in the individuals serving as
incumbent Authorized Officers.
FURTHER RESOLVED, that the Company ("Indemnitor") undertakes and agrees to
indemnify and hold harmless Distributors, each affiliate of Distributors,
each Franklin Templeton Fund and their officers, employees and agents
(referred to hereafter collectively as the "Indemnitees") from and against
any and all liability, loss, suits, claims, costs, damages and expenses of
whatever amount and whatever nature (including without limitation
reasonable attorneys' fees, whether for consultation and advice or
representation in litigation at both the trial and appellate level) any
indemnitee may sustain or incur by reason of, in consequence of, or arising
from or in connection with any action taken or not taken by an Indemnitee
in good faith reliance on a Company Instruction given as authorized under
this resolution."
The undersigned further certifies that the below named persons, whose
signatures appear opposite their names, are the incumbent Authorized
Officers (as that term is defined in the above resolution) who have been
duly elected to the office identified beside their name(s) (attach
additional list if necessary).
X
Name/title (please print or type) Signature
X
Name/title (please print or type) Signature
X
Name/title (please print or type) Signature
X
Name/title (please print or type) Signature
Certified from minutes
X___________________________________________
Signature
- ------------------------------------------------------------------------------
Name/title (please print or type)
CORPORATE SEAL (if appropriate)
<PAGE>
FRANKLIN TEMPLETON GROUP OF FUNDS
LITERATURE REQUEST CALL 1-800/DIAL BEN (1-800/342-5236) today for a free
descriptive brochure and prospectus on any of the fundslisted below. The
prospectus contains more complete information, including fees, charges and
expenses, and should be read carefully before investing or sending money.
<PAGE>
GLOBAL GROWTH
- -------------------------------------------------------------------------------
Franklin Global Health Care Fund
Franklin Templeton Japan Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller
Companies Fund
Templeton Global
Infrastructure Fund
Templeton Global
Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller
Companies Fund
Templeton Greater European Fund
Templeton Growth Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH AND INCOME
Franklin Global Utilities Fund
Franklin Templeton German
Government Bond Fund
Franklin Templeton
Global Currency Fund
Mutual European Fund
Templeton Global Bond Fund
Templeton Growth and Income
Fund
GLOBAL INCOME
Franklin Global Government
Income Fund
Franklin Templeton Hard
Currency Fund
Franklin Templeton High
Income Currency Fund
Templeton Americas
Government Securities Fund
GROWTH
Franklin Biotechnology
Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund
Franklin DynaTech Fund
Franklin Equity Fund
Franklin Gold Fund
Franklin Growth Fund
Franklin MidCap
Growth Fund
Franklin Small Cap Growth Fund
Mutual Discovery Fund
GROWTH AND INCOME
Franklin Asset Allocation Fund
Franklin Balance Sheet
Investment Fund
Franklin Convertible Securities Fund
Franklin Equity Income
Fund
Franklin Income Fund
Franklin MicroCap Value Fund
Franklin Natural
Resources Fund
Franklin Real Estate Securities Fund
Franklin Rising Dividends
Fund
Franklin Strategic Income Fund
ranklin Utilities Fund
Franklin Value Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
Templeton American Trust, Inc.
FUND ALLOCATOR SERIES
Franklin Templeton
Conservative Target Fund
Franklin Templeton
Moderate Target Fund
Franklin Templeton
Growth Target Fund
INCOME
Franklin Adjustable Rate
Securities Fund
Franklin Adjustable U.S.
Government Securities Fund
Franklin's AGE High Income Fund
Franklin Investment
Grade Income Fund
Franklin Short-Intermediate U.S.
Government Securities Fund
Franklin U.S. Government
Securities Fund
Franklin Money Fund
Franklin Federal Money Fund
FOR CORPORATIONS
Franklin Corporate Qualified
Dividend Fund
FRANKLIN FUNDS SEEKING
TAX-FREE INCOME
Federal Intermediate-Term
Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund
Puerto Rico Tax-Free Income Fund
Tax-Exempt Money Fund
FRANKLIN STATE-SPECIFIC FUNDS
SEEKING TAX-FREE INCOME
Alabama
Arizona*
Arkansas**
California*
Colorado
Connecticut
Florida*
Georgia
Hawaii**
Indiana
Kentucky
Louisiana
Maryland
Massachusetts***
Michigan*
Minnesota***
Missouri
New Jersey
New York*
North Carolina
Ohio***
Oregon
Pennsylvania
Tennessee**
Texas
Virginia
Washington**
VARIABLE ANNUITIES+
Franklin Valuemark(R)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
<PAGE>
*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).
**The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
***Portfolio of insured municipal securities.
+Franklin Valuemark and Franklin Templeton Valuemark Income Plus are issued by
Allianz Life Insurance Company of North America or by its wholly owned
subsidiary, Preferred Life Insurance Company of New York, and distributed by
NALAC Financial Plans, LLC.
104 PA 01/98
FGF 09/97 [RECYCLE LOGO] Printed on recycled paper TL104 PA
<PAGE>
TEMPLETON
-------------
FOREIGN FUND BULK RATE
P.O. Box 33031 U.S. Postage
ST. PETERSBURG, FL 33733-8031 PAID
Sacramento,CA
Permit No. 3333
---------------
104 PA 01/98
TL104 PA [RECYCLE LOGO} Printed on recycled paper
<PAGE>
PART B
CLASS I & II
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
TEMPLETON
FUNDS, INC.
STATEMENT OF
ADDITIONAL INFORMATION LOGO
100 FOUNTAIN PARKWAY, P.O. BOX 33030
JANUARY 1, 1998 ST. PETERSBURG, FL 33733-8030 1-800/DIAL BEN
- -------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE
How Do the Funds Invest Their
Assets?.............................. 2
What Are the Risks of Investing in
the Funds?........................... 4
Investment Restrictions.............. 8
Officers and Directors............... 9
Investment Management and Other
Services............................ 14
How Do the Funds Buy Securities for
Their Portfolios?................... 15
How Do I Buy, Sell and Exchange
Shares?............................. 17
How Are Fund Shares Valued?......... 20
Additional Information on
Distributions and Taxes............. 20
The Funds' Underwriter............... 25
How Do the Funds Measure
Performance?......................... 27
Miscellaneous Information............ 30
Financial Statements................. 31
Useful Terms and Definitions......... 31
Appendix............................. 33
Description of Ratings............. 33
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When reading this SAI, you will see certain terms beginning with capital
letters. This means the term is explained under "Useful Terms and Definitions."
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Templeton Funds, Inc. (the "Company") is a diversified, open-end management
investment company consisting of the following: Templeton World Fund ("World
Fund") and Templeton Foreign Fund ("Foreign Fund") (each, a "Fund" and
collectively, the "Funds"). World Fund's investment goal is long-term capital
growth, which it seeks to achieve by a flexible policy of investing in the
equity and debt securities of companies and governments of any nation. Any
income realized will be incidental. Foreign Fund's investment goal is long-term
capital growth, which it seeks to achieve through a flexible policy of investing
in stocks and debt obligation of companies and governments outside the U.S. Any
income realized will be incidental.
Each Fund's Prospectus, dated January 1, 1998, as may be amended from time to
time, contains the basic information you should know before investing in the
Fund. For a free copy, call 1-800/DIAL BEN.
This SAI describes the Funds' Class I and Class II shares. Foreign Fund
currently offers another class of shares with a different sales charge and
expense structure, which affects performance. This class is described in a
separate SAI and prospectus. For more information, contact your investment
representative or call 1-800/DIAL BEN.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE
DETAIL THAN SET FORTH IN EACH FUND'S PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE
YOU WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF EACH
FUND, AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUSES.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
O ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE
U.S. GOVERNMENT;
O ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
O ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
HOW DO THE FUNDS INVEST THEIR ASSETS?
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The following provides more detailed information about some of the securities
the Funds may buy and their investment policies. You should read it together
with the section in each Fund's Prospectus entitled "How Does the Fund Invest
Its Assets?"
EQUITY SECURITIES. The purchaser of an equity security typically receives an
ownership interest in the company as well as certain voting rights. The owner of
an equity security may participate in a company's success through the receipt of
dividends which are distributions of earnings by the company to its owners.
Equity security owners may also participate in a company's success or lack of
success through increases or decreases in the value of the company's shares as
traded in the public trading market for such shares. Equity securities generally
take the form of common stock or preferred stock. Preferred stockholders
typically receive greater dividends but may receive less appreciation than
common stockholders and may have greater voting rights as well. Equity
securities may also include convertible securities, warrants or rights.
Convertible securities typically are debt securities or preferred stocks which
are convertible into common stock after certain time periods or under certain
circumstances. Warrants or rights give the holder the right to purchase a common
stock at a given time for a specified price.
DEBT SECURITIES. A debt security typically has a fixed payment schedule which
obligates the issuer to pay interest to the lender and to return the lender's
money over a certain time period. A company typically meets its payment
obligations associated with its outstanding debt securities before it declares
and pays any dividend to holders of its equity securities. Bonds, notes,
debentures and commercial paper differ in the length of the issuer's payment
schedule, with bonds carrying the longest repayment schedule and commercial
paper the shortest.
The market value of debt securities generally varies in response to changes in
interest rates and the financial condition of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. These changes in market value will be reflected
in each Fund's Net Asset Value.
REPURCHASE AGREEMENTS. Repurchase agreements are contracts under which the
buyer of a security simultaneously commits to resell the security to the
seller at an agreed-upon price and date. Under a repurchase agreement, the
seller is required to maintain the value of the securities subject to the
repurchase agreement at not less than their repurchase price. Global
Advisors will monitor the value of such securities daily to determine that
the value equals or exceeds the repurchase price. Repurchase agreements may
involve risks in the event of default or insolvency of the seller,
including possible delays or restrictions upon the Fund's ability to
dispose of the underlying securities. Each Fund will enter into repurchase
agreements only with parties who meet creditworthiness standards approved
by the Board, I.E., banks or broker-dealers which have been determined by
Global Advisors to present no serious risk of becoming involved in
bankruptcy proceedings within the time frame contemplated by the repurchase
transaction.
LOANS OF PORTFOLIO SECURITIES. World Fund may lend to banks and broker-dealers
portfolio securities with an aggregate market value of up to one-third of its
total assets. Such loans must be secured by collateral (consisting of any
combination of cash, U.S. government securities or irrevocable letters of
credit) in an amount at least equal (on a daily marked-to-market basis) to the
current market value of the securities loaned. World Fund retains all or a
portion of the interest received on investment of the cash collateral or
receives a fee from the borrower. World Fund may terminate the loans at any time
and obtain the return of the securities loaned within five business days. World
Fund will continue to receive any interest or dividends paid on the loaned
securities and will continue to have voting rights with respect to the
securities. However, as with other extensions of credit, there are risks of
delay in recovery or even loss of rights in collateral should the borrower fail.
STRUCTURED INVESTMENTS. Included among the issuers of debt securities in which
the Funds may invest are entities organized and operated solely for the purpose
of restructuring the investment characteristics of various securities. These
entities are typically organized by investment banking firms which receive fees
in connection with establishing each entity and arranging for the placement of
its securities. This type of restructuring involves the deposit with or
purchases by an entity, such as a corporation or trust, of specified instruments
and the issuance by that entity of one or more classes of securities
("structured investments") backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued structured investments to create securities
with different investment characteristics such as varying maturi- ties, payment
priorities or interest rate provisions; the extent of the payments made with
respect to structured investments is dependent on the extent of the cash flow on
the underlying instruments. Because structured investments of the type in which
the Funds anticipate investing typically involve no credit enhancement, their
credit risk will generally be equivalent to that of the underlying instruments.
The Funds are permitted to invest in a class of structured investments that is
either subordinated or unsubordinated to the right of payment of another class.
Subordinated structured investments typically have higher yields and present
greater risks than unsubordinated structures investments. Although the Funds'
purchase of subordinated structured investments would have a similar economic
effect to that of borrowing against the underlying securities, the purchase will
not be deemed to be leverage for purposes of the limitations placed on the
extent of the Funds' assets that may be used for borrowing activities.
Certain issuers of structured investments may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, each Fund's investment in
these structured investments may be limited by the restrictions contained in the
1940 Act. Structured investments are typically sold in private placement
transactions, and there currently is no active trading market for structured
investments. To the extent such investments are illiquid, they will be subject
to the Funds' restrictions on investments in illiquid securities.
STOCK INDEX FUTURES CONTRACTS. World Fund's investment policies permit it to buy
and sell stock index futures contracts with respect to any stock index traded on
a recognized stock exchange or board of trade, to an aggregate amount not
exceeding 20% of World Fund's total assets as of the time when such contracts
are entered into. Successful use of stock index futures is subject to Global
Advisors' ability to predict correctly movements in the direction of the stock
markets. No assurance can be given that Global Advisors' judgment in this
respect will be correct.
A stock index futures contract is a contract to buy or sell units of a stock
index at a specified future date at a price agreed upon when the contract is
made. The value of a unit is the current value of the stock index. For example,
the S&P 500 Stock Index ("S&P 500 Index") is composed of 500 selected common
stocks, most of which are listed on the NYSE. The S&P 500 Index assigns relative
weightings to the value of one share of each of these 500 common stocks included
in the Index, and the Index fluctuates with changes in the market values of the
shares of those common stocks. In the case of the S&P 500 Index, contracts are
to buy or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The stock index futures
contract specifies that no delivery of the actual stocks making up the Index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the contract.
For example, if World Fund enters into a futures contract to buy 500 units of
the S&P 500 Index at a specified future date at a contract price of $150 and the
S&P 500 Index is at $154 on that future date, World Fund will gain $2,000 (500
units x gain of $4). If World Fund enters into a futures contract to sell 500
units of the stock index at a specified future date at a contract price of $150
and the S&P 500 Index is at $154 on that future date, World Fund will lose
$2,000 (500 units x loss of $4).
During or in anticipation of a period of market appreciation, World Fund may
enter into a "long hedge" of common stock which it proposes to add to its
portfolio by purchasing stock index futures for the purpose of reducing the
effective purchase price of such common stock. To the extent that the securities
which World Fund proposes to buy change in value in correlation with the stock
index contracted for, the purchase of futures contracts on that index would
result in gains to World Fund which could be offset against rising prices of
such common stock.
During or in anticipation of a period of market decline, World Fund may "hedge"
common stock in its portfolio by selling stock index futures for the purpose of
limiting the exposure of its portfolio to such decline. To the extent that World
Fund's portfolio of securities changes in value in correlation with a given
stock index, the sale of futures contracts on that index could substantially
reduce the risk to the portfolio of a market decline and, by so doing, provide
an alternative to the liquidation of securities positions in the portfolio with
resultant transaction costs.
Parties to an index futures contract must make initial margin deposits to secure
performance of the contract, which currently range from 1 1/2% to 5% of the
contract amount. Initial margin requirements are determined by the respective
exchanges on which the futures contracts are traded. There also are requirements
to make variation margin deposits as the value of the futures contract
fluctuates.
At the time World Fund purchases a stock index futures contract, an amount of
cash, U.S. government securities, or other highly liquid debt securities equal
to the market value of the contract will be deposited in a segregated account
with World Fund's custodian. When selling a stock index futures contract, World
Fund will maintain with its custodian liquid assets that, when added to the
amounts deposited with a futures commission merchant or broker as margin, are
equal to the market value of the instruments underlying the contract.
Alternatively, World Fund may "cover" its position by owning a portfolio with a
volatility substantially similar to that of the index on which the futures
contract is based, or holding a call option permitting World Fund to purchase
the same futures contract at a price no higher than the price of the contract
written by World Fund (or at a higher price if the difference is maintained in
liquid assets with World Fund's custodian).
STOCK INDEX OPTIONS. World Fund may purchase and sell put and call options on
securities indices in standardized contracts traded on national securities
exchanges, boards of trade, or similar entities, or quoted on NASDAQ. An option
on a securities index is a contract that gives the purchaser of the option, in
return for the premium paid, the right to receive from the writer of the option
cash equal to the difference between the closing price of the index and the
exercise price of the option, expressed in dollars, times a specified multiplier
for the index option. (An index is designed to reflect specified facets of a
particular financial or securities market, a specific group of financial
instruments or securities, or certain economic indicators.)
World Fund may write call options and put options only if they are "covered." A
call option on an index is covered if World Fund maintains with its custodian
cash or cash equivalents equal to the contract value. A call option is also
covered if World Fund holds a call on the same index as the call written where
the exercise price of the call held is (i) equal to or less than the exercise
price of the call written, or (ii) greater than the exercise price of the call
written, provided the difference is maintained by World Fund in cash or cash
equivalents in a segregated account with its custodian. A put option is also
covered if World Fund holds a put on the same index as the put written where the
exercise price of the put held is (i) equal to or greater than the exercise
price of the put written, or (ii) less than the exercise price of the put
written, provided the difference is maintained by World Fund in cash or cash
equivalents in a segregated account with its custodian.
If an option written by World Fund expires, World Fund will realize a capital
gain equal to the premium received at the time the option was written. If an
option purchased by World Fund expires unexercised, World Fund will realize a
capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series (type, exchange,
index, exercise price, and expiration). There can be no assurance, however, that
a closing purchase or sale transaction can be effected when World Fund desires.
WHAT ARE THE RISKS OF INVESTING IN THE FUNDS?
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FOREIGN SECURITIES. Each Fund has an unlimited right to purchase securities in
any foreign country, developed or developing, if they are listed on a stock
exchange, as well as a limited right to purchase such securities if they are
unlisted. Investors should consider carefully the substantial risks involved in
securities of companies and governments of foreign nations, which are in
addition to the usual risks inherent in domestic investments.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the U.S.
Foreign companies are not generally subject to uniform accounting or financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. companies. The Funds, therefore, may
encounter difficulty in obtaining market quotations for purposes of valuing its
portfolio and calculating their Net Asset Value. Foreign markets have
substantially less volume than the NYSE and securities of some foreign companies
are less liquid and more volatile than securities of comparable U.S. companies.
Although each Fund may invest up to 15% of its total assets in unlisted foreign
securities, including up to 10% of its total assets in securities with a limited
trading market, in the opinion of management such securities with a limited
trading market do not present a significant liquidity problem. Commission rates
in foreign countries, which are generally fixed rather than subject to
negotiation as in the U.S., are likely to be higher. In many foreign countries
there is less government supervision and regulation of stock exchanges, brokers
and listed companies than in the U.S.
Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict
each Fund's investment opportunities, including restrictions on investment in
issuers or industries deemed sensitive to national interests; (iv) foreign
taxation; (v) the absence of developed legal structures governing private or
foreign investment or allowing for judicial redress for injury to private
property; (vi) the absence, until recently in certain Eastern European
countries, of a capital market structure or market-oriented economy; and (vii)
the possibility that recent favorable economic developments in Eastern Europe
may be slowed or reversed by unanticipated political or social events in such
countries.
In addition, many countries in which the Funds may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Investments in Eastern European countries may involve risks of nationalization,
expropriation and confiscatory taxation. The Communist governments of a number
of Eastern European countries expropriated large amounts of private property in
the past, in many cases without adequate compensation, and there can be no
assurance that such expropriation will not occur in the future. In the event of
such expropriation, the Fund could lose a substantial portion of any investments
it has made in the affected countries. Further, no accounting standards exist in
certain Eastern European countries. Finally, even though certain Eastern
European currencies may be convertible into U.S. dollars, the conversion rates
may be artificial to the actual market values and may be adverse to the Funds'
shareholders.
Investing in Russian companies involves a high degree of risk and special
considerations not typically associated with investing in the U.S. securities
markets, and should be considered highly speculative. Such risks include,
together with Russia's continuing political and economic instability and the
slow-paced development of its market economy, the following: (a) delays in
settling portfolio transactions and risk of loss arising out of Russia's system
of share registration and custody; (b) the risk that it may be impossible or
more difficult than in other countries to obtain and/or enforce a judgment; (c)
pervasiveness of corruption, insider-trading, and crime in the Russian economic
system; (d) currency exchange rate volatility and the lack of available currency
hedging instruments; (e) higher rates of inflation (including the risk of social
unrest associated with periods of hyper-inflation); (f) controls on foreign
investment and local practices disfavoring foreign investors and limitations on
repatriation of invested capital, profits and dividends, and on a Fund's ability
to exchange local currencies for U.S. dollars; (g) the risk that the government
of Russia or other executive or legislative bodies may decide not to continue to
support the economic reform programs implemented since the dissolution of the
Soviet Union and could follow radically different political and/or economic
policies to the detriment of investors, including non-market-oriented policies
such as the support of certain industries at the expense of other sectors or
investors, a return to the centrally planned economy that existed prior to the
dissolution of the Soviet Union, or the nationalization of privatized
enterprises; (h) the risks of investing in securities with substantially less
liquidity and in issuers having significantly smaller market capitalizations,
when compared to securities and issuers in more developed markets; (i) the
difficulties associated in obtaining accurate market valuations of many Russian
securities, based partly on the limited amount of publicly available
information; (j) the financial condition of Russian companies, including large
amounts of inter-company debt which may create a payments crisis on a national
scale; (k) dependency on exports and the corresponding importance of
international trade; (l) the risk that the Russian tax system will not be
reformed to prevent inconsistent, retroactive and/or exorbitant taxation or, in
the alternative, the risk that a reformed tax system may result in the
inconsistent and unpredictable enforcement of the new tax laws; (m) possible
difficulty in identifying a purchaser of securities held by the Funds due to the
underdeveloped nature of the securities markets; (n) the possibility that
pending legislation could restrict the levels of foreign investment in certain
industries, thereby limiting the number of investment opportunities in Russia;
(o) the risk that pending legislation would confer to Russian courts the
exclusive jurisdiction to resolve disputes between foreign investors and the
Russian government, instead of bringing such disputes before an
internationally-accepted third-country arbitrator; and (p) the difficulty in
obtaining information about the financial condition of Russian issuers, in light
of the different disclosure and accounting standards applicable to Russian
companies.
There is little long-term historical data on Russian securities markets because
they are relatively new and a substantial proportion of securities transactions
in Russia are privately negotiated outside of stock exchanges. Because of the
recent formation of the securities markets as well as the underdeveloped state
of the banking and telecommunications systems, settlement, clearing and
registration of securities transactions are subject to significant risks.
Ownership of shares (except where shares are held through depositories that meet
the requirements of the 1940 Act) is defined according to entries in the
company's share register and normally evidenced by extracts from the register or
by formal share certificates. However, there is no central registration system
for shareholders and these services are carried out by the companies themselves
or by registrars located throughout Russia. These registrars are not necessarily
subject to effective state supervision nor are they licensed with any
governmental entity and it is possible for the Funds to lose their registration
through fraud, negligence or even mere oversight. While each Fund will endeavor
to ensure that its interest continues to be appropriately recorded either itself
or through a custodian or other agent inspecting the share register and by
obtaining extracts of share registers through regular confirmations, these
extracts have no legal enforceability and it is possible that subsequent illegal
amendment or other fraudulent act may deprive the Funds of their ownership
rights or improperly dilute their interests. In addition, while applicable
Russian regulations impose liability on registrars for losses resulting from
their errors, it may be difficult for the Funds to enforce any rights they may
have against the registrar or issuer of the securities in the event of loss of
share registration. Furthermore, although a Russian public enterprise with more
than 500 shareholders is required by law to contract out the maintenance of its
shareholder register to an independent entity that meets certain criteria, in
practice this regulation has not always been strictly enforced. Because of this
lack of independence, management of a company may be able to exert considerable
influence over who can purchase and sell the company's shares by illegally
instructing the registrar to refuse to record transactions in the share
register. In addition, so-called "financial- industrial groups" have emerged in
recent years that seek to deter outside investors from interfering in the
management of companies they control. These practices may prevent the Funds from
investing in the securities of certain Russian companies deemed suitable by
Global Advisors. Further, this also could cause a delay in the sale of Russian
company securities by the Funds if a potential purchaser is deemed unsuitable,
which may expose the Fund to potential loss on the investment.
Each Fund's management endeavors to buy and sell foreign currencies on as
favorable a basis as practicable. Some price spread in currency exchange (to
cover service charges) will be incurred, particularly when the Fund change
investments from one country to another or when proceeds of the sale of shares
in U.S. dollars are used for the purchase of securities in foreign countries.
Also, some countries may adopt policies which would prevent the Funds from
transferring cash out of the country or withhold portions of interest and
dividends at the source. There is the possibility of cessation of trading on
national exchanges, expropriation, nationalization or confiscatory taxation,
withholding and other foreign taxes on income or other amounts, foreign exchange
controls (which may include suspension of the ability to transfer currency from
a given country), default in foreign government securities, political or social
instability, or diplomatic developments which could affect investments in
securities of issuers in foreign nations.
Either Fund may be affected either unfavorably or favorably by fluctuations in
the relative rates of exchange between the currencies of different nations, by
exchange control regulations and by indigenous economic and political
developments. Some countries in which the Funds may invest may also have fixed
or managed currencies that are not free-floating against the U.S. dollar.
Further, certain currencies may not be internationally traded.
Certain of these currencies have experienced a steady devaluation relative to
the U.S. dollar. Any devaluations in the currencies in which a Fund's portfolio
securities are denominated may have a detrimental impact on that Fund. Through
the flexible policy of the Funds, Global Advisor endeavors to avoid unfavorable
consequences and to take advantage of favorable developments in particular
nations where from time to time it places the investments of either Fund.
The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses.
The Board considers at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of either Fund's assets maintained with custodians in foreign
countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. The Board also considers the
degree of risk involved through the holding of portfolio securities in domestic
and foreign securities depositories (see "Investment Management and Other
Services -- Shareholder Servicing Agent and Custodian"). However, in the absence
of willful misfeasance, bad faith or gross negligence on the part of Global
Advisors, any losses resulting from the holding of either Fund's portfolio
securities in foreign countries and/or with securities depositories will be at
the risk of the shareholders. No assurance can be given that the Board's
appraisal of the risks will always be correct or that such exchange control
restrictions or political acts of foreign governments might not occur.
LOWER-RATED SECURITIES. Bonds rated Caa by Moody's are of poor standing. Such
securities may be in default or there may be present elements of danger with
respect to principal or interest. Bonds rated CCC by S&P are regarded, on
balance, as speculative. Such securities will have some quality and protective
characteristics, but these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Although they may offer higher yields than do higher rated securities, low rated
and unrated generally involve greater volatility of price and
risk to principal and income, including the possibility of default by, or
bankruptcy of, the issuers of the securities. In addition, the markets in which
low rated and unrated debt securities are traded are more limited than those in
which higher rated securities are traded. The existence of limited markets for
particular securities may diminish the Funds' ability to sell the securities at
fair value either to meet redemption requests or to respond to a specific
economic event such as a deterioration in the creditworthiness of the issuer.
Reduced secondary market liquidity for certain low rated or unrated debt
securities may also make it more difficult for each Fund to obtain accurate
market quotations for the purposes of valuing its portfolio. Market quotations
are generally available on many low rated or unrated securities only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of low rated debt securities,
especially in a thinly traded market. Analysis of the creditworthiness of
issuers of low rated debt securities may be more complex than for issuers of
higher rated securities, and the ability of each Fund to achieve its investment
goal may, to the extent of investment in low rated debt securities, be more
dependent upon such creditworthiness analysis than would be the case if the Fund
were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of low rated debt securities have been found to be less sensitive to
interest rate changes than higher rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. A projection of
an economic downturn or of a period of rising interest rates, for example, could
cause a decline in low rated debt securities prices because the advent of a
recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of low
rated debt securities defaults, the Funds may incur additional expenses to seek
recovery.
The Funds may accrue and report interest on high yield bonds structured as zero
coupon bonds or pay-in-kind securities as income even though they receive no
cash interest until the security's maturity or payment date. In order to qualify
for beneficial tax treatment afforded regulated investment companies, each Fund
must distribute substantially all of its income to shareholders (see "Additional
Information on Distributions and Taxes"). Thus, the Funds may have to dispose of
its portfolio securities under disadvantageous circumstances to generate cash in
order to satisfy the distribution requirement.
DERIVATIVE SECURITIES. There are additional risks involved in stock index
futures transactions. These risks relate to World Fund's ability to reduce or
eliminate its futures positions, which will depend upon the liquidity of the
secondary markets for such futures. World Fund intends to purchase or sell
futures only on exchanges or boards of trade where there appears to be an active
secondary market, but there is no assurance that a liquid secondary market will
exist for any particular contract at any particular time. Use of stock index
futures for hedging may involve risks because of imperfect correlations between
movements in the prices of the stock index futures on the one hand and movements
in the prices of the securities being hedged or of the underlying stock index on
the other. Successful use of stock index futures by World Fund for hedging
purposes also depends upon Global Advisors' ability to predict correctly
movements in the direction of the market, as to which no assurance can be given.
There are several risks associated with transactions in options on securities
indices. For example, there are significant differences between the securities
and options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. A decision
as to whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events. There can be no
assurance that a liquid market will exist when World Fund seeks to close out an
option position. If World Fund were unable to close out an option that it had
purchased on a securities index, it would have to exercise the option in order
to realize any profit or the option may expire worthless. If trading were
suspended in an option purchased by World Fund, it would not be able to close
out the option. If restrictions on exercise were imposed, World Fund might be
unable to exercise an option it has purchased. Except to the extent that a call
option on an index written by World Fund is covered by an option on the same
index purchased by World Fund, movements in the index may result in a loss to
World Fund; however, such losses may be mitigated by changes in the value of
World Fund's securities during the period the option was outstanding.
INVESTMENT RESTRICTIONS
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Each Fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the respective Fund. Under the 1940 Act, this
means the approval of (i) more than 50% of the outstanding shares of a Fund or
(ii) 67% or more of the shares of a Fund present at a shareholder meeting if
more than 50% of the outstanding shares of a Fund are represented at the meeting
in person or by proxy, whichever is less.
The Funds MAY NOT:
1. Invest in real estate or mortgages on real estate (although each Fund may
invest in marketable securities secured by real estate or interests
therein or issued by companies or investment trusts which invest in real
estate or interests therein); invest in other open-end investment
companies; invest in interests (other than debentures or equity stock
interests) in oil, gas or other mineral exploration or development
programs; or purchase or sell commodity contracts except that World Fund
may purchase or sell stock index futures contracts.
2. Purchase or retain securities of any company in which directors or
officers of the Company or of its Investment Manager, individually owning
more than 1/2 of 1% of the securities of such company, in the aggregate
own more than 5% of the securities of such company.
3. Purchase more than 10% of any class of securities of any one company,
including more than 10% of its outstanding voting securities, or invest
in any company for the purpose of exercising control or management.
4. Act as an underwriter; issue senior securities; purchase on margin or
sell short; write, buy or sell puts, calls, straddles or spreads (but
World Fund may make margin payments in connection with, and purchase and
sell, stock index futures contracts and options on securities indices).
5. Loan money apart from the purchase of a portion of an issue of publicly
distributed bonds, debentures, notes and other evidences of indebtedness,
although the Funds may buy from a bank or broker-dealer U.S. government
obligations with a simultaneous agreement by the seller to repurchase
them within no more than seven days at the original purchase price plus
accrued interest.
6. Borrow money for any purpose other than redeeming its shares or
purchasing its shares for cancellation, and then only as a temporary
measure up to an amount not exceeding 5% of the value of its total
assets; or pledge, mortgage or hypothecate its assets for any purpose
other than to secure such borrowings, and then only up to such extent not
exceeding 10% of the value of its total assets as the Board may by
resolution approve. As an operating policy approved by the Board, neither
Fund will pledge, mortgage or hypothecate its assets to the extent that
at any time the percentage of pledged assets plus the sales commission
will exceed 10% of the Offering Price of the shares of a Fund. (For
purposes of this restriction, collateral arrangements by World Fund with
respect to margin for a stock index futures contract are not deemed to be
a pledge of assets.)
7. Invest more than 5% of the value of a Fund's total assets in securities
of issuers which have been in continuous operation less than three years.
8. Invest more than 5% of a Fund's total assets in warrants, whether or not
listed on the NYSE or the American Stock Exchange, including no more than
2% of its total assets which may be invested in warrants that are not
listed on those exchanges. Warrants acquired by a Fund in units or
attached to securities are not included in this restriction. This
restriction does not apply to options on securities indices.
9. Invest more than 15% of a Fund's total assets in securities of foreign
issuers which are not listed on a recognized U.S. or foreign securities
exchange, including no more than 10% of its total assets (including
warrants) which may be invested in securities with a limited trading
market. A Fund's position in the latter type of securities may be of such
size as to affect adversely their liquidity and marketability and a Fund
may not be able to dispose of its holdings in these securities at the
current market price.
10. Invest more than 25% of a Fund's total assets in a single industry.
11. Invest in "letter stocks" or securities on which there are any sales
restrictions under a purchase agreement.
12. Participate on a joint or a joint and several basis in any trading
account in securities. (See "How Do the Funds Buy Securities for its
Portfolios?" as to transactions in the same securities for the Funds,
other clients and/or other mutual funds within the Franklin Templeton
Group of Funds.)
The Funds may also be subject to investment limitations imposed by foreign
jurisdictions in which the Funds sells their shares.
If a bankruptcy or other extraordinary event occurs concerning a particular
security owned by the Funds, the Funds may receive stock, real estate, or other
investments that the Funds would not, or could not, buy. In this case, the Funds
intend to dispose of the investment as soon as practicable while maximizing the
return to shareholders. Nothing in the investment policy or investment
restrictions (except restrictions 9 and 10) shall be deemed to prohibit either
Fund from purchasing securities pursuant to subscription rights distributed to
either Fund by any issuer of securities held at the time in its portfolio (as
long as such purchase is not contrary to either Fund's status as a diversified
investment company under the 1940 Act).
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in value of portfolio securities
or the amount of assets will not be considered a violation of any of the
foregoing restrictions.
OFFICERS AND DIRECTORS
- -------------------------------------------------------------------------------
The Board has the responsibility for the overall management of the Funds,
including general supervision and review of their investment activities. The
Board, in turn, elects the officers of the Company who are responsible for
administering the Funds' day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
Company under the 1940 Act are indicated by an asterisk (*).
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME, AGE AND ADDRESS WITH THE FUND PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
----------------------------------- -------------------------- ----------------------------------------------------
<S> <C> <C>
HARRIS J. ASHTON Director Chairman of the board, president and chief
Metro Center executive officer of General Host Corporation
1 Station Place (nursery and craft centers); director of RBC
Stamford, Connecticut Holdings Inc. (a bank holding company) and
Age 65 Bar-S Foods (a meat packing company); and
director or trustee of 52 of the investment
companies in the Franklin Templeton Group of
Funds.
-------------------------------- --------------------- ---------------------------------------------
* NICHOLAS F. BRADY Director Chairman of Templeton Emerging Markets
The Bullitt House Investment Trust PLC; chairman of Templeton Latin
102 East Dover Street America Investment Trust PLC; chairman of
Easton, Maryland Darby Overseas Investments, Ltd. and Darby
Age 67 Emerging Markets Investments LDC (investment firms)
(1994-present); chairman and director of
Templeton Central and Eastern European
Investment Company; director of the Templeton
Global Strategy Funds, Amerada Hess
Corporation, Christiana Companies, and the H.J.
Heinz Company; formerly, Secretary of the United
States Department of the Treasury (1988-1993)
and chairman of the board of Dillon, Read & Co.,
Inc.(investment banking) prior to 1988; and
director or trustee of 23 of the investment
companies in the Franklin Templeton
Group of Funds.
------------------------------- ---------------------- -------------------------------------------------------------------
S. JOSEPH FORTUNATO Director Member of the law firm of Pitney, Hardin,
200 Campus Drive Kipp& Szuch; director of General Host
Florham Park, New Jersey Corporation (nursery and craft centers); and
Age 65 director or trustee of 54 of the investment
companies in the Franklin Templeton Group of
Funds.
-------------------------------- --------------------- ---------------------------------------------
JOHN Wm. GALBRAITH Director President of Galbraith Properties, Inc.
360 Central Avenue (personal investment company); director of
Suite 1300 GulfWest Banks, Inc. (bank holding company)
St. Petersburg, Florida (1995-present); formerly, director of
Age 76 Mercantile Bank (1991-1995), vice chairman
of Templeton, Galbraith & Hansberger Ltd.
(1986-1992) and chairman of Templeton Funds
Management, Inc. (1974-1991); and director
or trustee of 22 of the investment companies
in the Franklin Templeton Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
ANDREW H. HINES, JR. Director Consultant for the Triangle Consulting
150 Second Avenue N. Group; executive-in-residence of Eckerd College
St. Petersburg, Florida (1991-present); formerly, chairman of the
Age 74 board and chief executive officer of Florida
Progress Corporation (1982-1990) and director of
various of its subsidiaries; and director or
trustee of 24 of the investment companies in the
Franklin Templeton Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
* CHARLES B. JOHNSON Chairman of the President, chief executive officer and
777 Mariners Island Blvd. Board and Vice director of Franklin Resources, Inc.; chairman of
San Mateo, California President the board and director of Franklin Advisers,
Age 64 Inc., Franklin Investment Advisory Services, Inc.,
Franklin Advisory Services, Inc. and
Franklin Templeton Distributors, Inc.; director of
Franklin/Templeton Investor Services, Inc.,
Franklin Templeton Services, Inc.and General
Host Corporation (nursery and craft centers);
and officer and/or director or trustee, as
the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and
53 of the investment companies in the Franklin
Templeton Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
RUPERT H. JOHNSON, JR. Director and Executive vice president and director of
777 Mariners Island Blvd. Vice President Franklin Resources, Inc. and Franklin Templeton
San Mateo, California Distributors, Inc.; president and director of
Age 57 Franklin Advisers, Inc.; senior vice
president and director of Franklin Advisory Services,
Inc. and Franklin Investment Advisory Services,
Inc.; director of Franklin/Templeton Investor
Services, Inc.; and officer and/or director or
trustee, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and 57
of the investment companies in the Franklin
Templeton Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
BETTY P. KRAHMER Director Director or trustee of various civic
2201 Kentmere Parkway associations; formerly, economic analyst,
Wilmington, Delaware U.S.government; and director or trustee of 23 of
Age 68 the investment companies in the Franklin
Templeton Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
GORDON S. MACKLIN Director Chairman of White River Corporation (financial
8212 Burning Tree Road services); director of Fund American
Bethesda, Maryland Enterprises Holdings, Inc., MCI Communications
Age 69 Corporation, CCC Information Services Group,
Inc. (information services), MedImmune, Inc.
(biotechnology), Shoppers Express (home
shopping) and Spacehab, Inc. (aerospace
services); formerly, chairman of Hambrecht
and Quist Group, director of H&Q Healthcare
Investors and president of the National
Association of Securities Dealers, Inc.; and
director or trustee of 51 of the investment
companies in the Franklin Templeton Group of
Funds.
-------------------------------- --------------------- ---------------------------------------------
FRED R. MILLSAPS Director Manager of personal investments (1978-present);
2665 N.E. 37th Drive director of various business and nonprofit
Fort Lauderdale, Florida organizations; formerly, chairman and chief
Age 68 executive officer of Landmark Banking
Corporation (1969-1978), financial vice
president of Florida Power and Light
(1965-1969), and vice president of the Federal
Reserve Bank of Atlanta (1958-1965); and director
or trustee of 24 of the investment companies in
the Franklin Templeton Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
MARK G. HOLOWESKO President President and chief investment officer of
Lyford Cay Templeton Global Advisors Limited; executive
Nassau, Bahamas vice president and director of Templeton
Age 37 Worldwide, Inc.; formerly, investment
administrator with RoyWest Trust Corporation
(Bahamas) Limited (1984-1985); and officer
of 23 of the investment companies in
the Franklin Templeton Group of Funds.
------------------------------- ---------------------- -------------------------------------------------------------------
HARMON E. BURNS Vice President Executive vice president, secretary and
777 Mariners Island Blvd. director of Franklin Resources, Inc.
San Mateo, California executive vice president and director of Franklin
Age 52 Templeton Distributors, Inc. and Franklin
Templeton Services, Inc.; executive vice
president of Franklin Advisers, Inc.;
director of Franklin/Templeton Investor Services,
Inc.; and officer and/or director or trustee, as
the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and 57 of the
investment companies in the Franklin Templeton
Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
CHARLES E. JOHNSON Vice President Senior vice president and director of
500 East Broward Blvd. Franklin Resources, Inc.; senior vice president of
Fort Lauderdale, Florida Franklin Templeton Distributors, Inc.;
Age 41 president and director of Templeton Worldwide,
Inc.; president, chief executive officer,chief
investment officer and director of Franklin
Institutional Services Corporation; chairman and
director of Templeton Investment Counsel,
Inc.; vice president of Franklin Advisers,
Inc.; officer and/or director of some of the
other subsidiaries of Franklin Resources, Inc.; and
officer and/or director or trustee, as the case may
be, of 37 of the investment companies in the Franklin
Templeton Group of Funds.
------------------------------- ---------------------- -------------------------------------------------------------------
DEBORAH R. GATZEK Vice President Senior vice president and general counsel of
777 Mariners Island Blvd. Franklin Resources, Inc.; senior vice
San Mateo, California president of Franklin Templeton Services, Inc.
Age 49 and Franklin Templeton Distributors, Inc.; vice
president of Franklin Advisers, Inc. and Franklin
Advisory Services, Inc.; vice president, chief legal
officer and chief operating officer of Franklin
Investment Advisory Services, Inc.; and officer of
57 of the investment companies in the Franklin
Templeton Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
MARTIN L. FLANAGAN Vice President Senior vice president and chief financial
777 Mariners Island Blvd. officer of Franklin Resources, Inc.; director
San Mateo, California and executive vice president of Templeton
Age 37 Worldwide, Inc.; director, executive vice
president and chief operating officer of
Templeton Investment Counsel, Inc.; senior
vice president and treasurer of Franklin
Advisers, Inc.; treasurer of Franklin Advisory
Services, Inc.; treasurer and chief financial
officer of Franklin Investment Advisory
Services, Inc.;president of Franklin Templeton
Services, Inc.; senior vice president of Franklin/Templeton
Investor Services, Inc.; and officer and/or
director or trustee, as the case may be, of
57 of the investment companies in the Franklin
Templeton Group of Funds.
------------------------------- ---------------------- -------------------------------------------------------------------
JEFFREY A. EVERETT Vice President Executive vice president, portfolio management
Lyford Cay of Templeton Global Advisors Limited; formerly,
Nassau, Bahamas investment officer at First Pennsylvania
Age 33 Investment Research (until 1989); and officer
of 2 of the investment companies in the
Franklin Templeton Group of Funds.
------------------------------- ---------------------- -------------------------------------------------------------------
JOHN R. KAY Vice President Vice president and treasurer of Templeton
500 East Broward Blvd. Worldwide, Inc.; assistant vice president of
Fort Lauderdale, Florida Franklin Templeton Distributors, Inc.;
Age 57 formerly, vice president and controller of
the Keystone Group, Inc.; and officer
of 27 of the investment companies in
the Franklin Templeton Group of Funds.
------------------------------- ---------------------- -------------------------------------------------------------------
ELIZABETH M. KNOBLOCK Vice President- General counsel, secretary and a senior vice
500 East Broward Blvd. Compliance president of Templeton Investment Counsel,
Fort Lauderdale, Florida Inc.; senior vice president of Templeton Global
Age 42 Investors, Inc.; formerly, vice president
and associate general counsel of Kidder Peabody
& Co. Inc. (1989-1990), assistant general counsel
of Gruntal & Co., Inc. (1988), vice president
and associate general counsel of Shearson
Lehman Hutton Inc. (1988), vice president and
assistant general counsel of E.F. Hutton & Co.
Inc. (1986-1988), and special counsel of the
Division of Investment Management of the U.S.
Securities and Exchange Commission(1984-1986);
and officer of 23 of the investment companies in
the Franklin Templeton Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
JAMES R. BAIO Treasurer Certified public accountant; treasurer of
500 East Broward Blvd. Franklin Mutual Advisers, Inc.; senior vice
Fort Lauderdale, Florida president of Templeton Worldwide, Inc.,
Age 43 Templeton Global Investors, Inc. and
Templeton Funds Trust Company; formerly, senior
tax manager with Ernst & Young (certified public
accountants) (1977-1989); and treasurer
of 24 of the investment companies in the Franklin
Templeton Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
BARBARA J. GREEN Secretary Senior vice president of Templeton Worldwide,
500 East Broward Blvd. Inc. and an officer of other subsidiaries of
Fort Lauderdale, Florida Templeton Worldwide, Inc.; senior vice
Age 50 president of Templeton Global Investors,
Inc.; formerly, deputy director of the Division
of Investment Management, executive assistant and
senior advisor to the chairman, counsellor to
the chairman, special counsel and attorney
fellow, U.S. Securities and Exchange Commission
(1986-1995), attorney, Rogers & Wells, and
judicial clerk, U.S. District Court (District of
Massachusetts); and secretary of 23 of the
investment companies in the Franklin Templeton
Group of Funds.
-------------------------------- --------------------- ---------------------------------------
</TABLE>
* Nicholas F. Brady, Rupert H. Johnson, Jr. and Charles B. Johnson are
"interested persons" of the Company under the 1940 Act, which limits the
percentage of interested persons that can comprise a fund's board. Charles B.
Johnson and Rupert H. Johnson, Jr. are interested persons due to their ownership
interest in Resources. Mr. Brady's status as an interested person results from
his business affiliations with Resources and Global Advisors. Mr. Brady and
Resources are both limited partners of Darby Overseas Partners, L.P. ("Darby
Overseas"). Mr. Brady established Darby Overseas in February 1994, and is
Chairman and shareholder of the corporate general partner of Darby Overseas. In
addition, Darby Overseas and Global Advisors are limited partners of Darby
Emerging Markets Fund, L.P. The remaining Board members of the Company are not
interested persons.
The table above shows the officers and Board members who are affiliated with
Distributors and Global Advisors. Nonaffiliated members of the Board and Mr.
Brady are currently paid an annual retainer and/or fees for attendance at Board
and committee meetings. Currently, the Company pays the nonaffiliated Board
members and Mr. Brady an annual retainer of $12,500, a fee of $950 per Board
meeting, and its portion of a flat fee of $2,000 for each audit committee
meeting and/or nominating and compensation committee meeting attended. As shown
above, the nonaffiliated Board members also serve as directors or trustees of
other investment companies in the Franklin Templeton Group of Funds. They may
receive fees from these funds for their services. The following table provides
the total fees paid to nonaffiliated Board members and Mr. Brady by the Company
and by other funds in the Franklin Templeton Group of Funds.
<TABLE>
<CAPTION>
TOTAL FEES NUMBER OF BOARDS IN
TOTAL FEES RECEIVED FROM THE THE FRANKLIN TEMPLETON
RECEIVED FROM FRANKLIN TEMPLETON GROUP OF FUNDS ON
THE GROUP OF WHICH EACH
NAME COMPANY(1) FUNDS(2) SERVES(3)
-------------------- ------------------- ------------------- -----------------------
<S> <C> <C> <C>
Harris J. Ashton... $16,300 $ 339,842 52
Nicholas F. Brady.. 16,300 119,675 23
S. Joseph Fortunato 16,300 356,762 54
John Wm. Galbraith. 17,420 117,675 22
Andrew H. Hines, Jr 17,420 144,175 24
Betty P. Krahmer... 16,300 119,675 23
Gordon S. Macklin.. 16,300 332,492 51
Fred R. Millsaps... 17,420 144,175 24
</TABLE>
* For the fiscal year ended August 31, 1997.
** For the calendar year ended December 31, 1997.
*** We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not include
the total number of series or funds within each investment company for which the
Board members are responsible. The Franklin Templeton Group of Funds currently
includes 59 registered investment companies, with approximately 172 U.S. based
funds or series.
Nonaffiliated members of the Board and Mr. Brady are reimbursed for expenses
incurred in connection with attending board meetings, paid pro rata by each fund
in the Franklin Templeton Group of Funds for which they serve as director or
trustee. No officer or Board member received any other compensation, including
pension or retirement benefits, directly or indirectly from the Company or other
funds in the Franklin Templeton Group of Funds. Certain officers or Board
members who are shareholders of Resources may be deemed to receive indirect
remuneration by virtue of their participation, if any, in the fees paid to its
subsidiaries.
As of November 26, 1997, the officers and Board members, as a group, owned of
record and benefithe following shares of each Fund: approximately 622,828 shares
of World Fund -- Class I and 254,557 shares of Foreign Fund -- Class I and
38,721 Advisor Class shares of Foreign Fund, or less than 1% of the total
outstanding Class I shares of each Fund and less than 1% of the total
outstanding Advisor Class shares of Foreign Fund. Many of the Board members also
own shares in other funds in the Franklin Templeton Group of Funds. Charles B.
Johnson and Rupert H. Johnson, Jr. are brothers and the father and uncle,
respectively, of Charles E. Johnson.
INVESTMENT MANAGEMENT AND
OTHER SERVICES
- ------------------------------------------------------------------------------
INVESTMENT MANAGER AND SERVICES PROVIDED. Each Fund's investment manager is
Global Advisors. Global Advisors provides investment research and portfolio
management services, including the selection of securities for the Funds to buy,
hold or sell and the selection of brokers through whom the Funds' portfolio
transactions are executed. Global Advisors renders its services to the Funds
from outside the U.S. and its activities are subject to the review and
supervision of the Board to whom Global Advisors renders periodic reports of the
Funds' investment activities. Global Advisors and its officers, directors and
employees are covered by fidelity insurance for the protection of the Funds.
Global Advisors and its affiliates act as investment manager to numerous other
investment companies and accounts. Global Advisors may give advice and take
action with respect to any of the other funds it manages, or for its own
account, that may differ from action taken by Global Advisors on behalf of the
Funds. Similarly, with respect to the Funds, Global Advisors is not obligated to
recommend, buy or sell, or to refrain from recommending, buying or selling any
security that Global Advisors and access persons, as defined by the 1940 Act,
may buy or sell for its or their own account or for the accounts of any other
fund. Global Advisors is not obligated to refrain from investing in securities
held by the Funds or other funds that it manages. Of course, any transactions
for the accounts of Global Advisors and other access persons will be made in
compliance with the Funds' Code of Ethics. Please see "Miscellaneous Information
- -- Summary of Code of Ethics."
MANAGEMENT FEES. Under its management agreement, each Fund pays Global Advisors
a monthly management fee equal to an annual rate of 0.75% of the average daily
net assets of the Fund up to the first $200,000,000, reduced to a fee of 0.675%
of such average daily net assets in excess of $200,000,000 up to $1,300,000,000.
Each class pays its proportionate share of the management fee.
For the fiscal years ended August 31, 1997, 1996 and 1995, management fees paid
to Global Advisors were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31 1997 1996 1995
-------------- ------------ ------------- ------------
<S> <C> <C> <C>
World Fund
Management
Fees....... $47,200,213 $ 38,564,076 $33,261,874
Foreign Fund
Management
Fees....... $79,502,378 $ 51,600,846 $36,110,792
</TABLE>
MANAGEMENT AGREEMENTS. The management agreements are in effect until December
31, 1998. They may continue in effect for successive annual periods if their
continuance is specifically approved at least annually by a vote of the Board or
by a vote of the holders of a majority of each Fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to either agreement or interested persons of any such party (other
than as members of the Board), cast in person at a meeting called for that
purpose. Each management agreement may be terminated without penalty at any time
by the Board or by a vote of the holders of a majority of that Fund's
outstanding voting securities, or by Global Advisors on 60 days' written notice,
and will automatically terminate in the event of its assignment, as defined in
the 1940 Act.
ADMINISTRATIVE SERVICES. Since October 1, 1996, FT Services has provided certain
administrative services and facilities for the Funds. Prior to that date,
Templeton Global Investors, Inc. provided the same services to the Funds. These
include preparing and maintaining books, records, and tax and financial reports,
and monitoring compliance with regulatory requirements. FT Services is a wholly
owned subsidiary of Resources.
Under its administration agreement, the Company pays FT Services a monthly
administration fee equal to an annual rate of 0.15% of the Company's average
daily net assets up to $200 million, 0.135% of average daily net assets over
$200 million up to $700 million, 0.10% of average daily net assets over $700
million up to $1.2 billion, and 0.075% of average daily net assets over $1.2
billion. During the fiscal years ended August 31, 1997, 1996 and 1995, the
Company paid administration fees totaling $16,145,466, $11,564,072 and
$8,965,630, respectively.
SHAREHOLDER SERVICING AGENT. Investor Services, a wholly owned subsidiary of
Resources, is the Company's shareholder servicing agent and acts as the
Company's transfer agent and dividend-paying agent. Investor Services is
compensated on the basis of a fixed fee per account. Each Fund may also
reimburse Investor Services for certain out-of-pocket expenses, which may
include payments by Investor Services to entities, including affiliated
entities, that provide sub-shareholder services, recordkeeping and/or transfer
agency services to beneficial owners of the respective Fund. The amount of
reimbursements for these services per benefit plan participant Fund account per
year may not exceed the per account fee payable by each Fund to Investor
Services in connection with maintaining shareholder accounts.
CUSTODIAN. The Chase Manhattan Bank, at its principal office at MetroTech
Center, Brooklyn, New York 11245, and at the offices of its branches and
agencies throughout the world, acts as custodian of the Funds' assets. The
custodian does not participate in decisions relating to the purchase and sale of
portfolio securities.
AUDITORS. McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017,
are the Funds' independent auditors. During the fiscal year ended August 31,
1997, their auditing services consisted of rendering an opinion on each Fund's
financial statements included in the Fund's Annual Report to Shareholders for
the fiscal year ended August 31, 1997, and review of each Fund's filings with
the SEC.
HOW DO THE FUNDS BUY SECURITIES
FOR THEIR PORTFOLIOS?
- ------------------------------------------------------------------------------
Global Advisors selects brokers and dealers to execute the Funds' portfolio
transactions in accordance with criteria set forth in the management agreement
and any directions that the Board may give.
When placing a portfolio transaction, Global Advisors seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio transactions
on a securities exchange, the amount of commission paid by each Fund is
negotiated between Global Advisors and the broker executing the transaction. The
determination and evaluation of the reasonableness of the brokerage commissions
paid are based to a large degree on the professional opinions of the persons
responsible for placement and review of the transactions. These opinions are
based on the experience of these individuals in the securities industry and
information available to them about the level of commissions being paid by other
institutional investors of comparable size. Global Advisors will ordinarily
place orders to buy and sell over-the-counter securities on a principal rather
than agency basis with a principal market maker unless, in the opinion of Global
Advisors, a better price and execution can otherwise be obtained. Purchases of
portfolio securities from underwriters will include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers will include a
spread between the bid and ask price.
Global Advisors may pay certain brokers commissions that are higher than those
another broker may charge, if Global Advisors determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and research
services it receives. This may be viewed in terms of either the particular
transaction or Global Advisors' overall responsibilities to client accounts over
which it exercises investment discretion. The services that brokers may provide
to Global Advisors include, among others, supplying information about particular
companies, markets, countries, or local, regional, national or transnational
economies, statistical data, quotations and other securities pricing
information, and other information that provides lawful and appropriate
assistance to Global Advisors in carrying out its investment advisory
responsibilities. These services may not always directly benefit each Fund. They
must, however, be of value to Global Advisors in carrying out its overall
responsibilities to its clients.
It is not possible to place a dollar value on the special executions or on the
research services Global Advisors receives from dealers effecting transactions
in portfolio securities. The allocation of transactions in order to obtain
additional research services permits Global Advisors to supplement its own
research and analysis activities and to receive the views and information of
individuals and research staffs of other securities firms. As long as it is
lawful and appropriate to do so, Global Advisors and its affiliates may use this
research and data in their investment advisory capacities with other clients. If
the Company's officers are satisfied that the best execution is obtained, the
sale of the Funds' shares, as well as shares of other funds in the Franklin
Templeton Group of Funds, may also be considered a factor in the selection of
broker-dealers to execute the Funds' portfolio transactions.
Because Distributors is a member of the NASD, it may sometimes receive certain
fees when a Fund tenders portfolio securities pursuant to a tender-offer
solicitation. As a means of recapturing brokerage for the benefit of a Fund, any
portfolio securities tendered by a Fund will be tendered through Distributors if
it is legally permissible to do so. In turn, the next management fee payable to
Global Advisors will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection with
the tender.
If purchases or sales of securities of a Fund and one or more other investment
companies or clients supervised by Global Advisors are considered at or about
the same time, transactions in these securities will be allocated among the
several investment companies and clients in a manner deemed equitable to all by
Global Advisors, taking into account the respective sizes of the funds and the
amount of securities to be purchased or sold. In some cases this procedure could
have a detrimental effect on the price or volume of the security so far as a
Fund is concerned. In other cases it is possible that the ability to participate
in volume transactions and to negotiate lower brokerage commissions will be
beneficial to a Fund.
Sale or purchase of securities, without payment of brokerage commissions, fees
(except customary transfer fees) or other remuneration in connection therewith,
may be affected between any of these funds, or between funds and private
clients, under procedures adopted pursuant to Rule 17a-7 under the 1940 Act.
During the fiscal years ended August 31, 1997, 1996 and 1995, World Fund paid
brokerage commissions totaling $12,702,676, $5,691,000 and $8,042,091,
respectively. During the fiscal years ended August 31, 1997, 1996 and 1995,
Foreign Fund paid brokerage commissions totaling $20,265,126, $10,641,000 and
$11,925,138, respectively.
As of August 31, 1997, World Fund owned securities issued by Merrill Lynch &
Co., Inc and Morgan Stanley, Dean Witter Discover & Co. valued in aggregate at
$83,867,550 and $142,015,528, respectively. As of August 31, 1997, Foreign Fund
did not own securities of its regular broker-dealers. Except as noted, the Funds
did not own any securities issued by their regular broker dealers as of the end
of the fiscal year.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
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ADDITIONAL INFORMATION ON BUYING SHARES
The Funds continuously offer their shares through Securities Dealers who have an
agreement with Distributors. Securities Dealers may at times receive the entire
sales charge. A Securities Dealer who receives 90% or more of the sales charge
may be deemed an underwriter under the Securities Act of 1933, as amended.
Securities laws of states where the Funds offer their shares may differ from
federal law. Banks and financial institutions that sell shares of a Fund may be
required by state law to register as Securities Dealers. Financial institutions
or their affiliated brokers may receive an agency transaction fee in the
percentages indicated in the table under "How Do I Buy Shares? -- Purchase Price
of Fund Shares" in the Prospectus.
When you buy shares, if you submit a check or a draft that is returned unpaid to
a Fund we may impose a $10 charge against your account for each returned item.
Under agreements with certain banks in Taiwan, Republic of China, the Funds'
shares are available to these banks' trust accounts without a sales charge. The
banks may charge service fees to their customers who participate in the trusts.
A portion of these service fees may be paid to Distributors or one of its
affiliates to help defray expenses of maintaining a service office in Taiwan,
including expenses related to local literature fulfillment and communication
facilities.
Class I shares of each Fund may be offered to investors in Taiwan through
securities advisory firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan, Class I
shares may be offered with the following schedule of sales charges:
SALES
SIZE OF PURCHASE--U.S. DOLLAR CHARGE
------------------------------------ --------
Under $30,000........................ 3.0%
$30,000 but less than $50,000........ 2.5%
$50,000 but less than $100,000....... 2.0%
$100,000 but less than $200,000...... 1.5%
$200,000 but less than $400,000...... 1.0%
$400,000 or more..................... 0%
OTHER PAYMENTS TO SECURITIES DEALERS. Distributors may pay the following
commissions, out of its own resources, to Securities Dealers who initiate and
are responsible for purchases of Class I shares of $1 million or more: 1% on
sales of $1 million to $2 million, plus 0.80% on sales over $2 million to $3
million, plus 0.50% on sales over $3 million to $50 million, plus 0.25% on sales
over $50 million to $100 million, plus 0.15% on sales over $100 million.
Either Distributors or one of its affiliates may pay the following amounts, out
of its own resources, to Securities Dealers who initiate and are responsible for
purchases of Class I shares by certain retirement plans without a front-end
sales charge, as discussed in each Fund's Prospectus: 1% on sales of $500,000 to
$2 million, plus 0.80% on sales over $2 million to $3 million, plus 0.50% on
sales over $3 million to $50 million, plus 0.25% on sales over $50 million to
$100 million, plus 0.15% on sales over $100 million. Distributors may make these
payments in the form of contingent advance payments, which may be recovered from
the Securities Dealer or set off against other payments due to the dealer if
shares are sold within 12 months of the calendar month of purchase. Other
conditions may apply. All terms and conditions may be imposed by an agreement
between Distributors, or one of its affiliates, and the Securities Dealer.
These breakpoints are reset every 12 months for purposes of additional
purchases.
Distributors and/or its affiliates provide financial support to various
Securities Dealers that sell shares of the Franklin Templeton Group of Funds.
This support is based primarily on the amount of sales of fund shares. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a Securities Dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a Securities Dealer's support of, and
participation in, Distributors' marketing programs; a Securities Dealer's
compensation programs for its registered representatives; and the extent of a
Securities Dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to Securities Dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain Securities Dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the NASD's rules.
LETTER OF INTENT. You may qualify for a reduced sales charge when you buy Class
I shares, as described in each Fund's Prospectus. At any time within 90 days
after the first investment that you want to qualify for a reduced sales charge,
you may file with the relevant Fund a signed shareholder application with the
Letter of Intent section completed. After the Let- ter is filed, each additional
investment will be entitled to the sales charge applicable to the level of
investment indicated on the Letter. Sales charge reductions based on purchases
in more than one Franklin Templeton Fund will be effective only after
notification to Distributors that the investment qualifies for a discount. Your
holdings in the Franklin Templeton Funds acquired more than 90 days before the
Letter is filed will be counted towards completion of the Letter, but they will
not be entitled to a retroactive downward adjustment in the sales charge. Any
redemptions you make during the 13 month period, except in the case of certain
retirement plans, will be subtracted from the amount of the purchases for
purposes of determining whether the terms of the Letter have been completed. If
the Letter is not completed within the 13 month period, there will be an upward
adjustment of the sales charge, depending on the amount actually purchased (less
redemptions) during the period. The upward adjustment does not apply to certain
retirement plans. If you execute a Letter before a change in the sales charge
structure of a Fund, you may complete the Letter at the lower of the new sales
charge structure or the sales charge structure in effect at the time the Letter
was filed.
As mentioned in each Fund's Prospectus, five percent (5%) of the amount of the
total intended purchase will be reserved in Class I shares of a Fund registered
in your name until you fulfill the Letter. This policy of reserving shares does
not apply to certain retirement plans. If total purchases, less redemptions,
equal the amount specified under the Letter, the reserved shares will be
deposited to an account in your name or delivered to you or as you direct. If
total purchases, less redemptions, exceed the amount specified under the Letter
and is an amount that would qualify for a further quantity discount, a
retroactive price adjustment will be made by Distributors and the Securities
Dealer through whom purchases were made pursuant to the Letter (to reflect such
further quantity discount) on purchases made within 90 days before and on those
made after filing the Letter. The resulting difference in Offering Price will be
applied to the purchase of additional shares at the Offering Price applicable to
a single purchase or the dollar amount of the total purchases. If the total
purchases, less redemptions, are less than the amount specified under the
Letter, you will remit to Distributors an amount equal to the difference in the
dollar amount of sales charge actually paid and the amount of sales charge that
would have applied to the aggregate purchases if the total of the purchases had
been made at a single time. Upon remittance, the reserved shares held for your
account will be deposited to an account in your name or delivered to you or as
you direct. If within 20 days after written request the difference in sales
charge is not paid, the redemption of an appropriate number of reserved shares
to realize the difference will be made. In the event of a total redemption of
the account before fulfillment of the Letter, the additional sales charge due
will be deducted from the proceeds of the redemption, and the balance will be
forwarded to you.
If a Letter is executed on behalf of certain retirement plans, the level and any
reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in the Franklin Templeton Funds
under the Letter. These plans are not subject to the requirement to reserve 5%
of the total intended purchase, or to any penalty as a result of the early
termination of a plan, nor are these plans entitled to receive retroactive
adjustments in price for investments made before executing the Letter.
REINVESTMENT DATE. Shares acquired through the reinvestment of dividends will be
purchased at the Net Asset Value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The processing
date for the reinvestment of dividends may vary and does not affect the amount
or value of the shares acquired.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be exchanged into
the new fund and will be invested at Net Asset Value. Backup withholding and
information reporting may apply. Information regarding the possible tax
consequences of an exchange is included in the tax section in this SAI and in
each Fund's Prospectus.
If a substantial number of shareholders should, within a short period, sell
their shares of a Fund under the exchange privilege, the Fund might have to sell
portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the exchange
privilege may result in periodic large inflows of money. If this occurs, it is
the Funds' general policy to initially invest this money in short-term,
interest-bearing money market instruments, unless it is believed that attractive
investment opportunities consistent with a Fund's investment goal exist
immediately. This money will then be withdrawn from the short-term, money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of a Fund's shares to complete an exchange
will be effected at Net Asset Value at the close of business on the day the
request for exchange is received in proper form. Please see "May I Exchange
Shares for Shares of Another Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
SYSTEMATIC WITHDRAWAL PLAN. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Payments under the plan will be made
from the redemption of an equivalent amount of shares in your account, generally
on the 25th day of the month in which a payment is scheduled. If the 25th falls
on a weekend or holiday, we will process the redemption on the next business
day.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from a Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.
A Fund may discontinue a systematic withdrawal plan by notifying you in writing
and will automatically discontinue a systematic withdrawal plan if all shares in
your account are withdrawn or if a Fund receives notification of the
shareholder's death or incapacity.
THROUGH YOUR SECURITIES DEALER. If you sell shares through your Securities
Dealer, it is your dealer's responsibility to transmit the order to the Fund in
a timely fashion. Any loss to you resulting from your dealer's failure to do so
must be settled between you and your Securities Dealer.
REDEMPTIONS IN KIND. Each Fund has committed itself to pay in cash (by check)
all requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the Fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net assets and you may incur brokerage fees in converting the securities
to cash. The Funds do not intend to redeem illiquid securities in kind. If this
happens, however, you may not be able to recover your investment in a timely
manner.
GENERAL INFORMATION
If dividend checks are returned to a Fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at Net Asset Value until we receive new instructions.
Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the Funds nor their
affiliates will be liable for any loss caused by your failure to cash such
checks.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to find
you from your account. These costs may include a percentage of the account when
a search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of a Fund must be denominated in U.S. dollars. We may, in our sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to your account for
the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank.
SPECIAL SERVICES. Investor Services may pay certain financial institutions that
maintain omnibus accounts with a Fund on behalf of numerous beneficial owners
for recordkeeping operations performed with respect to such owners. For each
beneficial owner in the omnibus account, a Fund may reimburse Investor Services
an amount not to exceed the per account fee that the Fund normally pays Investor
Services. These financial institutions may also charge a fee for their services
directly to their clients.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
HOW ARE FUND SHARES VALUED?
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We calculate the Net Asset Value per share as of the scheduled close of the
NYSE, generally 4:00 p.m. Eastern time, each day that the NYSE is open for
trading. As of the date of this SAI, the Funds are informed that the NYSE
observes the following holidays: New Year's Day, Martin Luther King Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
For the purpose of determining the aggregate net assets of a Fund, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Portfolio securities
listed on a securities exchange or on the NASDAQ National Market System for
which market quotations are readily available are valued at the last quoted sale
price of the day or, if there is no such reported sale, within the range of the
most recent quoted bid and ask prices. Over-the-counter portfolio securities are
valued within the range of the most recent quoted bid and ask prices. Portfolio
securities that are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by Global Advisors.
Portfolio securities underlying actively traded call options are valued at their
market price as determined above. The current market value of any option held by
World Fund is its last sale price on the relevant exchange before the time when
assets are valued. Lacking any sales that day or if the last sale price is
outside the bid and ask prices, options are valued within the range of the
current closing bid and ask prices if the valuation is believed to fairly
reflect the contract's market value.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
of the NYSE on each day that the NYSE is open. Trading in European or Far
Eastern securities generally, or in a particular country or countries, may not
take place on every NYSE business day. Furthermore, trading takes place in
various foreign markets on days that are not business days for the NYSE and on
which the Net Asset Value of each class is not calculated. Thus, the calculation
of the Net Asset Value of each class does not take place contemporaneously with
the determination of the prices of many of the portfolio securities used in the
calculation and, if events materially affecting the values of these foreign
securities occur, the securities will be valued at fair value as determined by
management and approved in good faith by the Board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the scheduled close of the NYSE. The value of these securities used in computing
the Net Asset Value of each class is determined as of such times. Occasionally,
events affecting the values of these securities may occur between the times at
which they are determined and the scheduled close of the NYSE that will not be
reflected in the computation of the Net Asset Value. If events materially
affecting the values of these securities occur during this period, the
securities will be valued at their fair value as determined in good faith by the
Board.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the Board. With the approval of the Board, a
Fund may utilize a pricing service, bank or Securities Dealer to perform any of
the above described functions.
ADDITIONAL INFORMATION ON
DISTRIBUTIONS AND TAXES
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DISTRIBUTIONS
1. DISTRIBUTIONS OF NET INVESTMENT INCOME. The Fund receives income generally in
the form of dividends, interest, original issue, market and acquisition
discount, and other income derived from its investments. This income, less
expenses incurred in the operation of the Fund, constitutes its net investment
income from which dividends may be paid to you. Any distributions by the Fund
from such income will be taxable to you as ordinary income, whether you take
them in cash or in additional shares.
2. DISTRIBUTIONS OF CAPITAL GAINS. The Fund may derive capital gains and losses
in connection with sales of its portfolio securities. Distributions derived from
the excess of net short-term capital gain over net long-term capital loss will
be taxable to you as ordinary income. Distributions paid from long-term capital
gains realized by the Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your shares in the Fund. Any net short-term
or long-term capital gains realized by the Fund (net of any capital loss
carryovers) generally will be distributed once each year, and may be distributed
more frequently, if necessary, in order to reduce or eliminate federal excise or
income taxes on the Fund.
Under the Taxpayer Relief Act of 1997 (the "1997 Act"), the Fund is required to
report the capital gain distributions paid to you from gains realized on the
sale of portfolio securities using the following categories:
o "28% RATE GAINS": gains resulting from securities sold by the Fund after
July 28, 1997 that were held for more than one year but not more than 18
months, and securities sold by the Fund before May 7, 1997 that were held
for more than one year. These gains will be taxable to individual investors
at a maximum rate of 28%.
o "20% RATE GAINS": gains resulting from securities sold by the Fund after
July 28, 1997 that were held for more than 18 months, and under a
transitional rule, securities sold by the Fund between May 7 and July 28,
1997 (inclusive) that were held for more than one year. These gains will be
taxable to individual investors at a maximum rate of 20% for individual
investors in the 28% or higher federal income tax brackets, and at a maximum
rate of 10% for investors in the 15% federal income tax bracket.
The Act also provides for a new maximum rate of tax on capital gains of 18% for
individuals in the 28% or higher federal income tax brackets and 8% for
individuals in the 15% bracket for "qualified 5-year gains." For individuals in
the 15% bracket, qualified 5-year gains are net gains on securities held for
more than 5 years which are sold after December 31, 2000. For individuals who
are subject to tax at higher rates, qualified 5-year gains are net gains on
securities which are purchased after December 31, 2000 and are held for more
than 5 years. Taxpayers subject to tax at the higher rates may also make an
election for shares held on January 1, 2001 to recognize gain on their shares in
order to qualify such shares as qualified 5-year property.
The Fund will advise you at the end of each calendar year of the amount of its
capital gain distributions paid during the calendar year that qualify for these
maximum federal tax rates. Additional information on reporting these
distributions on your personal income tax returns is available in Franklin
Templeton's Tax Information Handbook (call toll-free 1-800-342-5236). This
handbook has been revised to include 1997 Act tax law changes, and will be
available in January, 1998. Questions concerning each investor's personal tax
reporting should be addressed to the investor's personal tax advisor.
3. CERTAIN DISTRIBUTIONS PAID IN JANUARY. Distributions which are declared in
October, November or December and paid to you in January of the following year,
will be treated for tax purposes as if they had been received by you on December
31 of the year in which they were declared. The Fund will report this income to
you on your Form 1099-DIV for the year in which these distributions were
declared.
4. FOREIGN TAX CREDITS INCLUDED IN DISTRIBUTIONS. The Fund may be subject to
foreign withholding taxes on income from certain of its foreign securities. If
more than 50% of the total assets of the Fund at the end of its fiscal year are
invested in securities of foreign corporations, the Fund may elect to
pass-through to you your pro rata share of foreign taxes paid by the Fund. If
this election is made, you will be (i) required to include in your gross income
your pro rata share of foreign source income (including any foreign taxes paid
by the Fund), and (ii) entitled to either deduct your share of such foreign
taxes in computing your taxable income or to claim a credit for such taxes
against your U.S. income tax, subject to certain limitations under the Code. If
the Fund elects to pass through to you the foreign income taxes that it has
paid, you will be informed at the end of the calendar year of the amount of
foreign taxes paid and foreign source income that must be included on your
federal income tax return. If the Fund invests 50% or less of its total assets
in securities of foreign corporations, it will not be entitled to pass-through
to you your pro-rata share of the foreign taxes paid by the Fund. In this case,
these taxes will be taken as a deduction by the Fund, and the income reported to
you will be the net amount after these deductions.
The 1997 Act also simplifies the procedures by which investors in funds that
invest in foreign securities can claim tax credits on their individual income
tax returns for the foreign taxes paid by the Fund. These provisions will allow
investors who claim a credit for foreign taxes paid of $300 or less on a single
return or $600 or less on a joint return during any year (all of which must be
reported on IRS Form 1099-DIV from the Fund to the investor) to bypass the
burdensome and detailed reporting requirements on the supporting foreign tax
credit schedule (Form 1116), and report foreign taxes paid directly on page 2 of
Form 1040. YOU SHOULD NOTE THAT THIS SIMPLIFIED PROCEDURE WILL NOT BE AVAILABLE
UNTIL CALENDAR YEAR 1998.
5. INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS. The Fund will inform you
of the amount and character of your distributions at the time they are paid, and
will advise you of the tax status for federal income tax purposes of such
distributions shortly after the close of each calendar year. Shareholders who
have not held Fund shares for a full year may have designated and distributed to
them as ordinary income or capital gain a percentage of income that is not equal
to the actual amount of such income earned during the period of their investment
in the Fund.
TAXES
1. ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY. In order to qualify
as a regulated investment company for tax purposes, the Fund must meet certain
specific requirements, including:
o The Fund must maintain a diversified portfolio of securities, wherein no
security (other than U.S. Government securities and securities of other
regulated investment companies) can exceed 25% of the Fund's total assets,
and, with respect to 50% of the Fund's total assets, no investment (other
than cash and cash items, U.S. Government securities and securities of other
regulated investment companies) can exceed 5% the Fund's total assets;
o The Fund must derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the sale
or disposition of stock, securities or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities
or currencies; and
o The Fund must distribute to its shareholders at least 90% of its net
investment income and net tax-exempt income for each of its fiscal years.
2. EXCISE TAX DISTRIBUTION REQUIREMENTS. The Code requires the Fund to
distribute at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its capital gain net income earned during the twelve
month period ending October 31 (in addition to undistributed amounts from the
prior year) to you by December 31 of each year in order to avoid federal excise
taxes. The Fund intends to declare and pay sufficient dividends in December (or
in January that are treated by you as received in December), but can give no
assurances that its distributions will be sufficient to eliminate all such
taxes.
3. REDEMPTION OF FUND SHARES. Redemptions and exchanges of Fund shares are
taxable transactions for federal and state income tax purposes. The tax law
requires that you recognize a gain or loss in an amount equal to the difference
between your tax basis and the amount you received in exchange for your shares,
subject to the rules described below. If you hold your shares as a capital
asset, the gain or loss that you realize will be capital gain or loss, and will
be long-term for federal income tax purposes if you have held your shares for
more than one year at the time of redemption or exchange. Any loss incurred on
the redemption or exchange of shares held for six months or less will be treated
as a long-term capital loss to the extent of any long-term capital gains
distributed to you by the Fund on those shares. The holding periods and
categories of capital gain that apply under the 1997 Act are described above in
the DISTRIBUTIONS section.
All or a portion of any loss that you realize upon the redemption of your Fund
shares will be disallowed to the extent that you purchase other shares in the
Fund (through reinvestment of dividends or otherwise) within 30 days before or
after your share redemption. Any loss disallowed under these rules will be added
to your tax basis in the new shares purchased.
4. DEFERRAL OF BASIS. All or a portion of the sales charge that you paid for
your shares in the Fund will be excluded from your tax basis in any of shares
sold within 90 days of their purchase (for the purpose of determining gain or
loss upon the sale of such shares) if you reinvest the sales proceeds in the
Fund or in another Fund in the Franklin Templeton Group of Funds(r), and the
sales charge that would otherwise apply to your reinvestment is reduced or
eliminated because of your reinvestment with Franklin Templeton. The
portion of the sales charge excluded from your tax basis in the shares
sold will equal the amount that the sales charge is reduced on your
reinvestment. Any portion of the sales charge excluded from your tax basis
in the shares sold will be added to the tax basis of the shares you acquire
from your reinvestment in another Franklin Templeton fund.
5. U.S. GOVERNMENT OBLIGATIONS. Many states grant tax-free status to dividends
paid to you from interest earned on direct obligations of the U.S. Government,
subject in some states to minimum investment requirements that must be met by
the Fund. Investments in GNMA/FNMA securities, bankers' acceptances, commercial
paper and repurchase agreements collateralized by U.S. Government securities do
not generally qualify for tax-free treatment. At the end of each calendar year,
the Fund will provide you with the percentage of any dividends paid that may
qualify for tax-free treatment on your personal income tax return. You should
consult with your own tax advisor to determine the application of your state and
local laws to these distributions. Because the rules on exclusion of this income
are different for corporations, corporate shareholders should consult with their
corporate tax advisors about whether any of their distributions may be exempt
from corporate income or franchise taxes.
6. DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS. As a corporate shareholder,
you should note that only a small percentage of the dividends paid by the Fund
for the most recent calendar year qualified for the dividends-received
deduction. You will be permitted in some circumstances to deduct these qualified
dividends, thereby reducing the tax that you would otherwise be required to pay
on these dividends. The dividends-received deduction will be available only with
respect to dividends designated by the Fund as eligible for such treatment.
Dividends so designated by the Fund must be attributable to dividends earned by
the Fund from U.S. corporations that were not debt financed.
Under the 1997 Act, the amount that the Fund may designate as eligible for the
dividends-received deduction will be reduced or eliminated if the shares on
which the dividends were earned by the Fund were debt financed or held by the
Fund for less than a 46 day period during a 90 day period beginning 45 days
before the ex-dividend date of the corporate stock. Similarly, if your Fund
shares are debt financed or held by you for less than this same 46 day period,
then the dividends-received deduction may also be reduced or eliminated. Even if
designated as dividends eligible for the dividends-received deduction, all
dividends (including the deducted portion) must be included in your alternative
minimum taxable income calculation.
7. INVESTMENT IN COMPLEX SECURITIES. The Fund's investment in options, futures
contracts and forward contracts, including transactions involving actual or
deemed short sales or foreign exchange gains or losses are subject to many
complex and special tax rules. Over-the-counter options on debt securities and
equity options, including options on stock and on narrow-based stock indexes,
will be subject to tax under Section 1234 of the Code, generally producing a
long-term or short-term capital gain or loss upon exercise, lapse, or closing
out of the option or sale of the underlying stock or security. Certain other
options, futures and forward contracts entered into by the Fund are generally
governed by Section 1256 of the Code. These "Section 1256" positions generally
include listed options on debt securities, options on broad-based stock indexes,
options on securities indexes, options on futures contracts, regulated futures
contracts and certain foreign currency contracts and options thereon.
Absent a tax election to the contrary, each Section 1256 position held by the
Fund will be marked-to-market (I.E., treated as if it were sold for fair market
value) on the last business day of the Fund's fiscal year (and on other dates as
prescribed by the Code), and all gain or loss associated with fiscal year
transactions and mark-to-market positions at fiscal year end (except certain
currency gain or loss covered by Section 988 of the Code) will generally be
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. Under legislation pending in technical corrections to the 1997 Act, the
60% long-term capital gain portion will qualify as "20% rate gain" and will be
subject to tax to individual investors at a maximum rate of 20% for investors in
the 28% or higher federal income tax brackets, or at a maximum rate of 10% for
investors in the 15% federal income tax bracket. Even though marked-to-market,
gains and losses realized on foreign currency and foreign security investments
will generally be treated as ordinary income. The effect of Section 1256
mark-to-market rules may be to accelerate income or to convert what otherwise
would have been long-term capital gains into short-term capital gains or
short-term capital losses into long-capital losses within the Fund. The
acceleration of income on Section 1256 positions may require the Fund to accrue
taxable income without the corresponding receipt of cash. In order to generate
cash to satisfy the distribution requirements of the Code, the Fund may be
required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
Fund shares. In these ways, any or all of these rules may affect the amount,
character and timing of income distributed to you by the Fund.
When the Fund holds an option or contract which substantially diminishes the
Fund's risk of loss with respect to another position of the Fund (as might occur
in some hedging transactions), this combination of positions could be treated as
a "straddle" for tax purposes, possibly resulting in deferral of losses,
adjustments in the holding periods and conversion of short-term capital losses
into long-term capital losses. The Fund may make certain tax elections for mixed
straddles (I.E., straddles comprised of at least one Section 1256 position and
at least one non-Section 1256 position) which may reduce or eliminate the
operation of these straddle rules.
The 1997 Act has also added new provisions for dealing with transactions that
are generally called "Constructive Sale Transactions." Under these rules, the
Fund must recognize gain (but not loss) on any constructive sale of an
appreciated financial position in stock, a partnership interest or certain debt
instruments. The Fund will generally be treated as making a constructive sale
when it: 1) enters into a short sale on the same property, 2) enters into an
offsetting notional principal contract, or 3) enters into a futures or forward
contract to deliver the same or substantially similar property. Other
transactions (including certain financial instruments called collars) will be
treated as constructive sales as provided in Treasury regulations to be
published. There are also certain exceptions that apply for transactions that
are closed before the end of the 30th day after the close of the taxable year.
8. INVESTMENTS IN FOREIGN CURRENCIES AND FOREIGN SECURITIES. The Fund is
authorized to invest in foreign currency denominated securities. Such
investments, if made, will have the following additional tax consequences:
Under the Code, gains and losses attributable to fluctuations in foreign
currency exchange rates which occur between the time the Fund accrues income
(including dividends), or accrues expenses, and the time the Fund actually
collects such income or pays such expenses generally are treated as ordinary
income or loss. Similarly, on the disposition of debt securities denominated in
a foreign currency and on the disposition of certain options, futures and
forward contracts, gain or loss attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security or contract and
the date its disposition also are treated as ordinary gain or loss. These gains
or losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of the Fund's net investment income, which, in
turn, will affect the amount of income to be distributed to you by the Fund.
If the Fund's Section 988 losses exceed the Fund's other net investment income
during a taxable year, the Fund generally will not be able to make ordinary
dividend distributions to you for that year, or distributions made before the
losses were realized will be recharacterized as return of capital distributions
for federal income tax purposes, rather than as an ordinary dividend or capital
gain distribution. If a distribution is treated as a return of capital, your tax
basis in your Fund shares will be reduced by a like amount (to the extent of
such basis), and any excess of the distribution over your tax basis in your Fund
shares will be treated as capital gain to you.
The 1997 Act generally requires that foreign income taxes be translated into
U.S. dollars at the average exchange rate for the tax year in which the taxes
are accrued. Certain exceptions apply to taxes paid or more than two years after
the taxable year to which they relate. This new law may require the Fund to
track and record adjustments to foreign taxes paid on foreign securities in
which it invests. Under the Fund's current reporting procedure, foreign taxes
paid are generally recorded at the time of each transaction using the foreign
currency spot rate available for the date of each payment. Under the new law,
the Fund will be required to record at fiscal year end (and at calendar year end
for excise tax purposes) an adjustment that reflects the difference between the
spot rates recorded for each payment and the year-end average exchange rate for
all of the Fund's foreign tax payments. There is a possibility that the mutual
fund industry will be given relief from this new provision, in which case no
year-end adjustments will be required.
9. INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANY SECURITIES. The Fund may
invest in shares of foreign corporations which may be classified under the Code
as passive foreign investment companies ("PFICs"). In general, a foreign
corporation is classified as a PFIC if at least one-half of its assets
constitute investment-type assets or 75% or more of its gross income is
investment-type income.
If the Fund receives an "excess distribution" with respect to PFIC stock, the
Fund itself may be subject to U.S. federal income tax on a portion of the
distribution, whether or not the corresponding income is distributed by the Fund
to you. In general, under the PFIC rules, an excess distribution is treated as
having been realized ratably over the period during which the Fund held the PFIC
shares. The Fund itself will be subject to tax on the portion, if any, of an
excess distribution that is so allocated to prior Fund taxable years, and an
interest factor will be added to the tax, as if the tax had been payable in such
prior taxable years. In this case, you would not be permitted to claim a credit
on your own tax return for the tax paid by the Fund. Certain distributions from
a PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions might
have been classified as capital gain. This may have the effect of increasing
Fund distributions to you that are treated as ordinary dividends rather than
long-term capital gain dividends.
The Fund may be eligible to elect alternative tax treatment with respect to PFIC
shares. Under an election that currently is available in some circumstances, the
Fund generally would be required to include in its gross income its share of the
earnings of a PFIC on a current basis, regardless of whether distributions are
received from the PFIC during such period. If this election were made, the
special rules, discussed above, relating to the taxation of excess
distributions, would not apply. In addition, the 1997 Act provides for another
election that would involve marking-to-market the Fund's PFIC shares at the end
of each taxable year (and on certain other dates as prescribed in the Code),
with the result that unrealized gains would be treated as though they were
realized. The Fund would also be allowed an ordinary deduction for the excess,
if any, of the adjusted basis of its investment in the PFIC stock over its fair
market value at the end of the taxable year. This deduction would be limited to
the amount of any net mark-to-market gains previously included with respect to
that particular PFIC security. If the Fund were to make this second PFIC
election, tax at the Fund level under the PFIC rules would generally be
eliminated.
The application of the PFIC rules may affect, among other things, the amount of
tax payable by the Fund (if any), the amounts distributable to you by the Fund,
the time at which these distributions must be made, and whether these
distributions will be classified as ordinary income or capital gain
distributions to you.
You should be aware that it is not always possible at the time shares of a
foreign corporation are acquired to ascertain that the foreign corporation is a
PFIC, and that there is always a possibility that a foreign corporation will
become a PFIC after the Fund acquires shares in that corporation. While the Fund
will generally seek to avoid investing in PFIC shares to avoid the tax
consequences detailed above, there are no guarantees that it will do so and it
reserves the right to make such investments as a matter of its fundamental
investment policy.
10. CONVERSION TRANSACTIONS. Gains realized by a Fund from transactions that are
deemed to be "conversion transactions" under the Code, and that would otherwise
produce capital gain may be recharacterized as ordinary income to the extent
that such gain does not exceed an amount defined as the "applicable imputed
income amount".
A conversion transaction is any transaction in which substantially all of the
Fund's expected return is attributable to the time value of the Fund's net
investment in such transaction, and any one of the following criteria are met:
1) there is an acquisition of property with a substantially contemporaneous
agreement to sell the same or substantially identical property in the
future;
2) the transaction is an applicable straddle;
3) the transaction was marketed or sold to the Fund on the basis that it
would have the economic characteristics of a loan but would be taxed as
capital gain; or
4) the transaction is specified in Treasury regulations to be promulgated in
the future.
The applicable imputed income amount, which represents the deemed return on the
conversion transaction based upon the time value of money, is computed using a
yield equal to 120 percent of the applicable federal rate, reduced by any prior
recharacterizations under this provision or the provisions of Section 263(g) of
the Code dealing with capitalized carrying costs.
11. STRIPPED PREFERRED STOCK. Occasionally, the Fund may purchase "stripped
preferred stock", that is subject to special tax treatment. Stripped preferred
stock is defined as certain preferred stock issues where ownership of the stock
has been separated from the right to receive dividends that have not yet become
payable. The stock must have a fixed redemption price, must not participate
substantially in the growth of the issuer, and must be limited and preferred as
to dividends. The difference between the redemption price and purchase price is
taken into Fund income over the term of the instrument as if it were original
issue discount. The amount that must be included in each period generally
depends on the original yield to maturity, adjusted for any prepayments of
principal.
THE FUND'S UNDERWRITER
- -------------------------------------------------------------------------------
Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering of each Fund's shares. The
underwriting agreement will continue in effect for successive annual periods if
its continuance is specifically approved at least annually by a vote of the
Board or by a vote of the holders of a majority of the Fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to the underwriting agreement or interested persons of any such
party (other than as members of the Board), cast in person at a meeting called
for that purpose. The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either party on 90 days'
written notice.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. Each Fund pays the expenses of preparing and
printing amendments to its registration statement and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
In connection with the offering of World Fund's shares, aggregate underwriting
commissions for the fiscal years ended August 31, 1997, 1996 and 1995, were
$13,309,479, $10,048,765 and $8,563,737, respectively. After allowances to
dealers, Distributors retained $2,081,327, $1,549,642 and $1,962,439 in net
underwriting discounts and commissions and received $40,118, $22,962 and $658 in
connection with redemptions or repurchases of shares for the respective years.
In connection with the offering of Foreign Fund's shares, aggregate underwriting
commissions for the fiscal years ended August 31, 1997, 1996 and 1995, were
$44,743,259, $42,994,326 and $42,927,772, respectively. After allowances to
dealers, Distributors retained $1,528,144, $3,233,516 and $6,510,032 in net
underwriting discounts and commissions and received $372,630, $105,779 and
$27,331 in connection with redemptions or repurchases of shares for the
respective years, Distributors may be entitled to reimbursement under the Rule
12b-1 plan for each class, as discussed below. Except as noted, Distributors
received no other compensation from the Funds for acting a underwriter.
Pursuant to underwriting agreements, Distributors acts as principal underwriter
in a continuous public offering of each Fund's shares throughout the world,
except for Hong Kong and other parts of Asia, and other countries or territories
as it might hereafter relinquish to another principal underwriter. The Funds'
have entered into non-exclusive underwriting agreements with Templeton Franklin
Investment Services (Asia) Limited ("Templeton Investment Services"), whose
office address is 2701 Shui On Centre, Hong Kong as principal underwriter for
sales of the shares in Hong Kong and other parts of Asia. The terms of the
underwriting agreements with Templeton Investment Services are substantially
similar to those of the Distribution Agreement with Distributors. Templeton
Investment Services is an indirect wholly owned subsidiary of Resources.
In connection with the offering of World Fund's shares, aggregate foreign
underwriting commissions for the fiscal years ended August 31, 1997, 1996 and
1995, were $933, $237 and $0, respectively. After allowances to dealers,
Templeton Investment Services retained $185, $47 and $0 in net underwriting
discounts and commissions and received $0, $0 and $0 in connection with
redemptions or repurchases of shares for the respective years. In connection
with the offering of Foreign Fund's shares, aggregate foreign underwriting
commissions for the fiscal years ended August 31, 1997, 1996 and 1995, were
$1,568, $0 and $0, respectively. After allowances to dealers, Templeton
Investment Services retained $304, $0 and $0 in net underwriting discounts and
commissions and received $0, $0 and $0 in connection with redemptions or
repurchases of shares for the respective years.
THE RULE 12B-1 PLANS
Class I and Class II have separate distribution plans or "Rule 12b-1 plans" that
were adopted pursuant to Rule 12b-1 of the 1940 Act.
THE CLASS I PLANS. Under the Class I plans, each Fund may pay up to a maximum of
0.25% per year of Class I's average daily net assets, payable quarterly, for
expenses incurred in the promotion and distribution of Class I shares.
THE CLASS II PLANS. Under the Class II plans, each Fund pays Distributors up to
0.75% per year of Class II's average daily net assets, payable quarterly, for
distribution and related expenses. These fees may be used to compensate
Distributors or others for providing distribution and related services and
bearing certain Class II expenses. All distribution expenses over this amount
will be borne by those who have incurred them without reimbursement by a Fund.
Under the Class II plan, each Fund also pays an additional 10.25% per year of
Class II's average daily net assets, payable quarterly, as a servicing fee.
The terms and provisions of each plan relating to required reports, term, and
approval are consistent with Rule 12b-1. In no event shall the aggregate
asset-based sales charges, which include payments made under each plan, plus any
other payments deemed to be made pursuant to a plan, exceed the amount permitted
to be paid under the rules of the NASD.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the plans as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. These banking institutions, however, are permitted to receive fees under
the plans for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing these services, you would
be permitted to remain a shareholder of a Fund, and alternate means for
continuing the servicing would be sought. In this event, changes in the services
provided might occur and you might no longer be able to avail yourself of any
automatic investment or other services then being provided by the bank. It is
not expected that you would suffer any adverse financial consequences as a
result of any of these changes.
Each plan has been approved in accordance with the provisions of Rule 12b-1. The
plans are renewable annually by a vote of the Board, including a majority vote
of the Board members who are not interested persons of the Company and who have
no direct or indirect financial interest in the operation of the plans, cast in
person at a meeting called for that purpose. It is also required that the
selection and nomination of such Board members be done by the noninterested
members of the Board. The plans and any related agreement may be terminated at
any time, without penalty, by vote of a majority of the non-interested Board
members on not more than 60 days' written notice, by Distributors on not more
than 60 days' written notice, by any act that constitutes an assignment of the
management agreement with Global Advisors or by vote of a majority of the
outstanding shares of the class. Distributors or any dealer or other firm may
also terminate their respective distribution or service agreement at any time
upon written notice.
The plans and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the outstanding shares of the class, and all material amendments to the plans
or any related agreements shall be approved by a vote of the non-interested
members of the Board, cast in person at a meeting called for the purpose of
voting on any such amendment.
Distributors is required to report in writing to the Board at least quarterly on
the amounts and purpose of any payment made under the plans and any related
agreements, as well as to furnish the Board with such other information as may
reasonably be requested in order to enable the Board to make an informed
determination of whether the plans should be continued.
For the fiscal year ended August 31, 1997, the total amounts paid by each Fund
pursuant to the Class I and Class II plans, and the purpose for which were used,
are as follows:
WORLD FUND CLASS I CLASS II
-------------------- ------------ -----------
Advertising........ $ 791,426 $ 11,840
Printing and mailing
of prospectuses
other than to
current
shareholders..... 199,613 2,986
Payments to
underwriters..... 158,571 77,217
Payments to broker-
dealers.......... 14,219,029 1,038,644
Other.............. 0 0
----------- ----------
Total Amount Paid.. 15,368,639 1,130,687
FOREIGN FUND CLASS I CLASS II
-------------------- ------------ -----------
Advertising........ $ 1,027,382 $ 278,986
Printing and mailing
of prospectuses
other than to
current
shareholders.... 794,895 215,854
Payments to
underwriters..... 715,955 785,122
Payments to broker-
dealers.......... 27,775,660 7,612,883
Other.............. 0 0
----------- ----------
Total Amount Paid.. 30,313,892 8,892,845
HOW DO THE FUNDS MEASURE
PERFORMANCE?
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Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by each Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Average annual total return quotations used by a Fund are based on the
standardized methods of computing performance mandated by the SEC. If a Rule
12b-1 plan is adopted, performance figures reflect fees from the date of the
plan's implementation. An explanation of these and other methods used by each
Fund to compute or express performance follows. Regardless of the method used,
past performance does not guarantee future results, and is an indication of the
return to shareholders only for the limited historical period used.
TOTAL RETURN
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is determined by
finding the average annual rates of return over the periods indicated below that
would equate an initial hypothetical $1,000 investment to its ending redeemable
value. The calculation assumes the maximum front-end sales charge is deducted
from the initial $1,000 purchase, and income dividends and capital gain
distributions are reinvested at Net Asset Value. The quotation assumes the
account was completely redeemed at the end of each period and the deduction of
all applicable charges and fees. If a change is made to the sales charge
structure, historical performance information will be restated to reflect the
maximum front-end sales charge currently in effect.
World Fund's average annual total return for Class I for the one-, five- and
ten-year periods ended August 31, 1997, was 25.07%, 17.88% and 11.42%,
respectively. World Fund's average annual total return for Class II for the
one-year period ended August 31, 1997, and for the period from inception (May 1,
1995) through August 31, 1997, was 29.31% and 21.35%, respectively. Foreign
Fund's average annual total return for Class I for the one-, five- and ten-year
periods ended August 31, 1997, was 19.76%, 13.86% and 11.64%, respectively.
Foreign Fund's average annual total return for Class II for the one-year period
ended August 31, 1997, and for the period from inception (May 1, 1995) through
August 31, 1997, was 16.47% and 13.78%, respectively.
These figures were calculated according to the SEC formula:
P (1+T)n = ERV
where:
P = a hypothetical initial payment
of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment made
at the beginning of each period at
the end of each period
CUMULATIVE TOTAL RETURN. Like average annual total return, cumulative total
return assumes the maximum front-end sales charge is deducted from the initial
$1,000 purchase, and income dividends and capital gain distributions are
reinvested at Net Asset Value. periods indicated above. World Fund's cumulative
total return for Class I for the one-, five- and ten-year periods ended August e
31, 1997, was 25.07%, 127.60% and 194.80%, respectively. World Fund's cumulative
total return for Class II for the one-year period ended August 31, 1997, and for
the period from inception (May 1, 1995) through August 31, 1997, was 29.32% and
57.12%, respectively. Foreign Fund's cumulative total return for Class I for the
one-, five- and ten-year periods ended August 31, 1997, was 12.66%, 80.00% and
182.85%, respectively. Foreign Fund's cumulative total return for Class II for
the one-year period ended August 31, 1997, and for the period from inception
(May 1, 1995) through August 31, 1997, was 16.47% and 35.18%, respectively.
VOLATILITY
Occasionally statistics may be used to show each Fund's volatility or risk.
Measures of volatility or risk are generally used to compare a Fund's Net Asset
Value or performance to a market index. One measure of volatility is beta. Beta
is the volatility of a fund relative to the total market, as represented by an
index considered representative of the types of securities in which the fund
invests. A beta of more than 1.00 indicates volatility greater than the market
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of Net Asset Value or total return around an average over
a specified period of time. The idea is that greater volatility means greater
risk undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS
Each Fund may also quote the performance of shares without a sales charge. Sales
literature and advertising may quote a current distribution rate, yield,
cumulative total return, average annual total return and other measures of
performance as described elsewhere in this SAI with the substitution of Net
Asset Value for the public Offering Price.
Sales literature referring to the use of a Fund as a potential investment for
Individual Retirement Accounts (IRAs), Business Retirement Plans, and other
tax-advantaged retirement plans may quote a total return based upon compounding
of dividends on which it is presumed no federal income tax applies.
Each Fund may include in its advertising or sales material information relating
to investment objec- tives and performance results of funds belonging to the
Franklin Templeton Group of Funds. Resources is the parent company of the
advisors and underwriter of the Franklin Templeton Group of Funds.
COMPARISONS
To help you better evaluate how an investment in a Fund may satisfy your
investment objective, advertisements and other materials about each Fund may
discuss certain measures of each class' performance as reported by various
financial publications. Materials may also compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
These comparisons may include, but are not limited to, the following examples:
(i) unmanaged indices so that you may compare a Fund's results with those of a
group of unmanaged securities widely regarded by investors as representative of
the securities market in general; (ii) other groups of mutual funds tracked by
Lipper Analytical Services, Inc., a widely used independent research firm that
ranks mutual funds by overall performance, investment objectives and assets, or
tracked by other services, companies, publications, or persons who rank mutual
funds on overall performance or other criteria; and (iii) the Consumer Price
Index (measure for inflation) to assess the real rate of return from an
investment in a Fund. Unmanaged indices may assume the reinvestment of dividends
but generally do not reflect deductions for administrative and management costs
and expenses.
From time to time, a Fund and Global Advisors may also refer to the following
information:
(a) Global Advisors' and its affiliates' market share of international equities
managed in mutual funds prepared or published by Strategic Insight or a
similar statistical organization.
(b) The performance of U.S. equity and debt markets relative to foreign
markets prepared or published by Morgan Stanley Capital
International(r) or a similar financial organization.
(c) The capitalization of U.S. and foreign stock markets as prepared or
published by the International Finance Corporation, Morgan
Stanley Capital International7 or a similar financial organization.
(d) The geographic and industry distribution of the Fund's portfolio and the
Fund's top ten holdings.
(e) The gross national product and populations, including age characteristics,
literacy rates, foreign investment improvements due to a liberalization of
securities laws and a reduction of foreign exchange controls, and improving
communication technology, of various countries as published by various
statistical organizations.
(f) To assist investors in understanding the different returns and risk
characteristics of various investments, the Fund may show historical returns
of various investments and published indices (E.G., Ibbotson Associates,
Inc. Charts and Morgan Stanley EAFE -- Index).
(g) The major industries located in various jurisdictions as published by the
Morgan Stanley Index.
(h) Rankings by DALBAR Surveys, Inc. with respect to mutual fund shareholder
services.
(i) Allegorical stories illustrating the importance of persistent long-term
investing.
(j) Each Fund's portfolio turnover rate and its ranking relative to industry
standards as published by Lipper Analytical Services, Inc. or Morningstar,
Inc.
(k) A description of the Templeton organization's investment management
philosophy and approach, including its worldwide search for undervalued or
"bargain" securities and its diversification by industry, nation and type of
stocks or other securities.
(l) The number of shareholders in each Fund or the aggregate number of
shareholders of the open-end investment companies in the Franklin Templeton
Group of Funds or the dollar amount of fund and private account assets under
management.
(m) Comparison of the characteristics of various emerging markets, including
population, financial and economic conditions.
(n) Quotations from the Templeton organization's founder, Sir John Templeton,* *
advocating the virtues of diversification and long-term investing, including
the following:
"Never follow the crowd. Superior performance is possible only if you
invest differently from the crowd."
"Diversify by company, by industry and by country."
"Always maintain a long-term perspective."
"Invest for maximum total real return."
"Invest -- don't trade or speculate."
"Remain flexible and open-minded about types of investment."
"Buy low."
"When buying stocks, search for bargains among quality stocks."
"Buy value, not market trends or the economic outlook."
"Diversify. In stocks and bonds, as in much else, there is safety in
numbers."
"Do your homework or hire wise experts to help you."
"Learn from your mistakes.
"Aggressively monitor your investments."
"Don't panic."
"Learn from your mistakes."
"Outperforming the market is a difficult task."
"An investor who has all the answers doesn't even understand all the
questions."
"There's no free lunch.""There's no free lunch."
"And now the last principle: Do not be fearful or negative too often."
From time to time, advertisements or information for each Fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the Fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information may also compare a class' performance to the
return on CDs or other investments. You should be aware, however, that an
investment in each Fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. For
example, as the general level of interest rates rise, the value of a Fund's
fixed-income investments, if any, as well as the value of its shares that are
based upon the value of such portfolio investments, can be expected to decrease.
Conversely, when interest rates decrease, the value of a Fund's shares can be
expected to increase. CDs are frequently insured by an agency of the U.S.
government. An investment in either Fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to a Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by a Fund to calculate its figures. In addition,
there can be no assurance that a Fund will continue its performance as compared
to these other averages.
MISCELLANEOUS INFORMATION
- -------------------------------------------------------------------------------
Each Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in a Fund
cannot guarantee that these goals will be met.
The Company is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 49 years and
now services more than 2.8 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton, a pioneer in international
investing. The Mutual Series team, known for its value-driven approach to
domestic equity investing, became part of the organization four years later.
Together, the Franklin Templeton Group has over $215 billion in assets under
management for more than 5.8 million U.S. based mutual fund shareholder and 121
U.S. based open-end investment companies to the public. Each Fund may identify
itself by its NASDAQ symbol or CUSIP number.
Currently, there are more mutual funds than there are stocks listed on the NYSE.
While many of them have similar investment objectives, no two are exactly alike.
As noted in the Prospectuses, shares of a Fund are generally sold through
Securities Dealers. Investment representatives of such Securities Dealers are
experienced professionals who can offer advice on the type of investment
suitable to your unique goals and needs, as well as the types of risks
associated with such investment.
From time to time, the number of Fund shares held in the "street name" accounts
of various Securities Dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of each Fund, no other person holds beneficially or of record
more than 5% of the outstanding shares of any class.
In the event of disputes involving multiple claims of ownership or authority to
control your account, each Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, before executing
instructions regarding the account; (b) interplead disputed funds or accounts
with a court of competent jurisdiction; or (c) surrender ownership of all or a
portion of the account to the IRS in response to a Notice of Levy.
SUMMARY OF CODE OF ETHICS. Employees of the Franklin Templeton Group who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed by the close of the business day following the day clearance is
granted; (ii) copies of all brokerage confirmations must be sent to a compliance
officer and, within 10 days after the end of each calendar quarter, a report of
all securities transactions must be provided to the compliance officer; and
(iii) access persons involved in preparing and making investment decisions must,
in addition to (i) and (ii) above, file annual reports of their securities
holdings each January and inform the compliance officer (or other designated
personnel) if they own a security that is being considered for a fund or other
client transaction or if they are recommending a security in which they have an
ownership interest for purchase or sale by a fund or other client.
FINANCIAL STATEMENTS
- ------------------------------------------------
The audited financial statements contained in the Annual Report to Shareholders
of each Fund of the Company, for the fiscal year ended August 31, 1997,
including the auditors' report, are incorporated herein by reference.
USEFUL TERMS AND DEFINITIONS
- ------------------------------------------------
1940 ACT - Investment Company Act of 1940, as
amended
BOARD - The Board of Directors of the Company
CD - Certificate of deposit
CLASS I, CLASS II AND ADVISOR CLASS - World Fund offers two classes of shares,
designated "Class I," and "Class II". The two classes have proportionate
interests in the Fund's portfolio. They differ, however, primarily in their
sales charge and expense structures. Foreign Fund offers three classes of
shares, designated "Class I", "Class II" and "Advisor Class." The three classes
have proportionate interests in the Fund's portfolio. They differ, however,
primarily in their sales charge and expense structures.
CODE - Internal Revenue Code of 1986, as amended
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity
Fund, and Templeton Variable Products Series Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(r) and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator
GLOBAL ADVISORS - Templeton Global Advisors Limited, the Funds' investment
manager
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Funds'
shareholder servicing and transfer agent
IRS - Internal Revenue Service
LETTER - Letter of Intent
MOODY'S - Moody's Investors Service, Inc.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NYSE - New York Stock Exchange
OFFERING PRICE - The public offering price is based on the Net Asset Value per
share of the class and includes the front-end sales charge. The maximum
front-end sales charge is 5.75% for Class I and 1% for Class II.
PROSPECTUS - The prospectus for each Fund's Class I and Class II shares dated
January 1, 1998, as may be amended from time to time
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with a Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
U.S. - United States
WE/OUR/US - Unless a different meaning is indicated by the context, these terms
refer to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
- ------------------------------------------------
CORPORATE BOND RATINGS
MOODY'S
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt-
edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present that make the long-term risks appear
somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered medium-grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. These
bonds lack outstanding investment characteristics and, in fact, have speculative
characteristics as well.
BA - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and, thereby, not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
CAA - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
CA - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
S&P
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C - Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service payments
are continuing. The C1 rat- ing is reserved for income bonds on which no
interest is being paid.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or minus (--): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
- --------
* Sir John Templeton sold the Templeton organization to Resources in October
1992 and resigned from the Board on April 16, 1995. He is no longer involved
with the investment management process.
<PAGE>
PART B
TEMPLETON FOREIGN FUND
ADVISOR CLASS
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
TEMPLETON FUNDS, INC.
TEMPLETON FOREIGN FUND
ADVISOR CLASS
STATEMENT OF
ADDITIONAL INFORMATION LOGO
100 FOUNTAIN PARKWAY, P.O. BOX 33030
JANUARY 1, 1998 ST. PETERSBURG, FL 33733-8030 1-800/DIAL BEN
- -------------------------------------------------------------------------------
TABLE OF CONTENTS PAGE
How Does the Fund Invest Its Assets?.. 2
What Are the Risks of Investing
in the Fund?.......................... 3
Investment Restrictions............... 6
Officers and Directors................ 7
Investment Management and Other
Services............................. 13
How Does the Fund Buy Securities for
Its Portfolio?....................... 14
How Do I Buy, Sell and Exchange
Shares?.............................. 15
How Are Fund Shares Valued?.......... 16
Additional Information on
Distributions and Taxes.............. 17
The Fund's Underwriter............... 22
How Does the Fund Measure
Performance?......................... 23
Miscellaneous Information............. 25
Financial Statements.................. 26
Useful Terms and Definitions.......... 26
Appendix.............................. 27
Description of Ratings................ 27
- -------------------------------------------------------------------------------
When reading this SAI, you will see certain terms beginning with capital
letters. This means the term is explained under "Useful Terms and Definitions."
- ------------------------------------------------------------------------------
Templeton Foreign Fund (the "Fund") is a diversified series of Templeton Funds,
Inc. (the "Company"), an open-end management investment company. The Fund's
investment goal is long-term capital growth. The Fund seeks to achieve its goal
by investing in stocks and debt obligations of companies and governments outside
the U.S.
This SAI describes the Fund's Advisor Class shares. The Prospectus, dated
January 1, 1998, as may be amended from time to time, contains the basic
information you should know before investing in the Fund. For a free copy, call
1-800/DIAL BEN.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE
DETAIL THAN SET FORTH IN THE PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE YOU
WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND,
AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
O ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE
U.S. GOVERNMENT;
O ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;
O ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
HOW DOES THE FUND INVEST ITS ASSETS?
- ------------------------------------------------------------------------------
The following provides more detailed information about some of the securities
the Fund may buy and its investment policies. You should read it together with
the section in the Prospectus entitled "How Does the Fund Invest Its Assets?"
EQUITY SECURITIES. The purchaser of an equity security typically receives an
ownership interest in the company as well as certain voting rights. The owner of
an equity security may participate in a company's success through the receipt of
dividends which are distributions of earnings by the company to its owners.
Equity security owners may also participate in a company's success or lack of
success through increases or decreases in the value of the company's shares as
traded in the public trading market for such shares. Equity securities generally
take the form of common stock or preferred stock. Preferred stockholders
typically receive greater dividends but may receive less appreciation than
common stockholders and may have greater voting rights as well. Equity
securities may also include convertible securities, warrants or rights.
Convertible securities typically are debt securities or preferred stocks which
are convertible into common stock after certain time periods or under certain
circumstances. Warrants or rights give the holder the right to purchase a common
stock at a given time for a specified price.
DEBT SECURITIES. A debt security typically has a fixed payment schedule which
obligates the issuer to pay interest to the lender and to return the lender's
money over a certain time period. A company typically meets its payment
obligations associated with its outstanding debt securities before it declares
and pays any dividend to holders of its equity securities. Bonds, notes,
debentures and commercial paper differ in the length of the issuer's payment
schedule, with bonds carrying the longest repayment schedule and commercial
paper the shortest.
The market value of debt securities generally varies in response to changes in
interest rates and the financial condition of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. These changes in market value will be reflected
in the Fund's Net Asset Value.
REPURCHASE AGREEMENTS. Repurchase agreements are contracts under which the buyer
of a security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Under a repurchase agreement, the seller is required
to maintain the value of the securities subject to the repurchase agreement at
not less than their repurchase price. Global Advisors will monitor the value of
such securities daily to determine that the value equals or exceeds the
repurchase price. Repurchase agreements may involve risks in the event of
default or insolvency of the seller, including possible delays or restrictions
upon the Fund's ability to dispose of the underlying securities. The Fund will
enter into repurchase agreements only with parties who meet creditworthiness
standards approved by the Board, I.E., banks or broker-dealers which have been
determined by Global Advisors to present no serious risk of becoming involved in
bankruptcy proceedings within the time frame contemplated by the repurchase
transaction.
STRUCTURED INVESTMENTS. Included among the issuers of debt securities in which
the Fund may invest are entities organized and operated solely for the purpose
of restructuring the investment characteristics of various securities. These
entities are typically organized by investment banking firms which receive fees
in connection with establishing each entity and arranging for the placement of
its securities. This type of restructuring involves the deposit with or
purchases by an entity, such as a corporation or trust, of specified instruments
and the issuance by that entity of one or more classes of securities
("structured investments") backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued structured investments to create securities
with different investment characteristics such as varying maturities, payment
priorities or interest rate provisions; the extent of the payments made with
respect to structured investments is dependent on the extent of the cash flow on
the underlying instruments. Because structured investments of the type in which
the Fund anticipates investing typically involve no credit enhancement, their
credit risk will generally be equivalent to that of the underlying instruments.
The Fund is permitted to invest in a class of structured investments that is
either subordinated or unsubordinated to the right of payment of another class.
Subordinated structured investments typically have higher yields and present
greater risks than unsubordinated structures investments. Although the Fund's
purchase of subordinated structured investments would have a similar economic
effect to that of borrowing against the underlying securities, the purchase will
not be deemed to be leverage for purposes of the limitations placed on the
extent of the Fund's assets that may be used for borrowing activities.
Certain issuers of structured investments may be deemed to be "investment
companies" as defined in the 1940 Act. As a result, the Fund's investment in
these structured investments may be limited by the restrictions contained in the
1940 Act. Structured investments are typically sold in private placement
transactions, and there currently is no active trading market for structured
investments. To the extent such investments are illiquid, they will be subject
to the Fund's restrictions on investments in illiquid securities.
WHAT ARE THE RISKS
OF INVESTING IN THE FUND?
- ------------------------------------------------------------------------------
FOREIGN SECURITIES. The Fund has an unlimited right to purchase securities in
any foreign country, developed or developing, if they are listed on a stock
exchange, as well as a limited right to purchase such securities if they are
unlisted. You should consider carefully the substantial risks involved in
securities of companies and governments of foreign nations, which are in
addition to the usual risks inherent in domestic investments.
There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the U.S.
Foreign companies are not generally subject to uniform accounting or financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. companies. The Fund, therefore, may
encounter difficulty in obtaining market quotations for purposes of valuing its
portfolio and calculating its Net Asset Value. Foreign markets have
substantially less volume than the NYSE and securities of some foreign companies
are less liquid and more volatile than securities of comparable U.S. companies.
Although the Fund may invest up to 15% of its total assets in unlisted foreign
securities, including up to 10% of its total assets in securities with a limited
trading market, in the opinion of management such securities with a limited
trading market do not present a significant liquidity problem. Commission rates
in foreign countries, which are generally fixed rather than subject to
negotiation as in the U.S., are likely to be higher. In many foreign countries
there is less government supervision and regulation of stock exchanges, brokers
and listed companies than in the U.S.
Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vii) the possibility that
recent favorable economic developments in Eastern Europe may be slowed or
reversed by unanticipated political or social events in such countries.
In addition, many countries in which the Fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Investments in Eastern European countries may involve risks of nationalization,
expropriation and confiscatory taxation. The Communist governments of a number
of Eastern European countries expropriated large amounts of private property in
the past, in many cases without adequate compensation, and there can be no
assurance that such expropriation will not occur in the future. In the event of
such expropriation, the Fund could lose a substantial portion of any investments
it has made in the affected countries. Further, no accounting standards exist in
certain Eastern European countries. Finally, even though certain Eastern
European currencies may be convertible into U.S. dollars, the conversion rates
may be artificial to the actual market values and may be adverse to the Fund's
shareholders.
Investing in Russian companies involves a high degree of risk and special
considerations not typically associated with investing in the U.S. securities
markets, and should be considered highly speculative. Such risks include,
together with Russia's continuing political and economic instability and the
slow-paced development of its market economy, the following: (a) delays in
settling portfolio transactions and risk of loss arising out of Russia's system
of share registration and custody; (b) the risk that it may be impossible or
more difficult than in other countries to obtain and/or enforce a judgment; (c)
pervasiveness of corruption, insider trading, and crime in the Russian economic
system; (d) currency exchange rate volatility and the lack of available currency
hedging instruments; (e) higher rates of inflation (including the risk of social
unrest associated with periods of hyper-inflation); (f) controls on foreign
investment and local practices disfavoring foreign investors and limitations on
repatriation of invested capital, profits and dividends, and on the Fund's
ability to exchange local currencies for U.S. dollars; (g) the risk that the
government of Russia or other executive or legislative bodies may decide not to
continue to support the economic reform programs implemented since the
dissolution of the Soviet Union and could follow radically different political
and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, a return to the centrally planned economy
that existed prior to the dissolution of the Soviet Union, or the
nationalization of privatized enterprises; (h) the risks of investing in
securities with substantially less liquidity and in issuers having significantly
smaller market capitalizations, when compared to securities and issuers in more
developed markets; (i) the difficulties associated in obtaining accurate market
valuations of many Russian securities, based partly on the limited amount of
publicly available information; (j) the financial condition of Russian
companies, including large amounts of inter-company debt which may create a
payments crisis on a national scale; (k) dependency on exports and the
corresponding importance of international trade; (l) the risk that the Russian
tax system will not be reformed to prevent inconsistent, retroactive and/or
exorbitant taxation or, in the alternative, the risk that a reformed tax system
may result in the inconsistent and unpredictable enforcement of the new tax
laws; (m) possible difficulty in identifying a purchaser of securities held by
the Fund due to the underdeveloped nature of the securities markets; (n) the
possibility that pending legislation could restrict the levels of foreign
investment in certain industries, thereby limiting the number of investment
opportunities in Russia; (o) the risk that pending legislation would confer to
Russian courts the exclusive jurisdiction to resolve disputes between foreign
investors and the Russian government, instead of bringing such disputes before
an internationally-accepted third-country arbitrator; and (p) the difficulty in
obtaining information about the financial condition of Russian issuers, in light
of the different disclosure and accounting standards applicable to Russian
companies.
There is little long-term historical data on Russian securities markets because
they are relatively new and a substantial proportion of securities transactions
in Russia are privately negotiated outside of stock exchanges. Because of the
recent formation of the securities markets as well as the underdeveloped state
of the banking and telecommunications systems, settlement, clearing and
registration of securities transactions are subject to significant risks.
Ownership of shares (except where shares are held through depositories that meet
the requirements of the 1940 Act) is defined according to entries in the
company's share register and normally evidenced by extracts from the register or
by formal share certificates. However, there is no central registration system
for shareholders and these services are carried out by the companies themselves
or by registrars located throughout Russia. These registrars are not necessarily
subject to effective state supervision nor are they licensed with any
governmental entity and it is possible for the Fund to lose its registration
through fraud, negligence or even mere oversight. While the Fund will endeavor
to ensure that its interest continues to be appropriately recorded either itself
or through a custodian or other agent inspecting the share register and by
obtaining extracts of share registers through regular confirmations, these
extracts have no legal enforceability and it is possible that subsequent illegal
amendment or other fraudulent act may deprive the Fund of its ownership rights
or improperly dilute its interests. In addition, while applicable Russian
regulations impose liability on registrars for losses resulting from their
errors, it may be difficult for the Fund to enforce any rights it may have
against the registrar or issuer of the securities in the event of loss of share
registration. Furthermore, although a Russian public enterprise with more than
500 shareholders is required by law to contract out the maintenance of its
shareholder register to an independent entity that meets certain criteria, in
practice this regulation has not always been strictly enforced. Because of this
lack of independence, management of a company may be able to exert considerable
influence over who can purchase and sell the company's shares by illegally
instructing the registrar to refuse to record transactions in the share
register. In addition, so-called "financial-industrial groups" have emerged in
recent years that seek to deter outside investors from interfering in the
management of companies they control. These practices may prevent the Fund from
investing in the securities of certain Russian companies deemed suitable by
Global Advisors. Further, this also could cause a delay in the sale of Russian
company securities by the Fund if a potential purchaser is deemed unsuitable,
which may expose the Fund to potential loss on the investment.
The Fund's management endeavors to buy and sell foreign currencies on as
favorable a basis as practicable. Some price spread in currency exchange (to
cover service charges) will be incurred, particularly when the Fund changes
investments from one country to another or when proceeds of the sale of shares
in U.S. dollars are used for the purchase of securities in foreign countries.
Also, some countries may adopt policies which would prevent the Fund from
transferring cash out of the country or withhold portions of interest and
dividends at the source. There is the possibility of cessation of trading on
national exchanges, expropriation, nationalization or confiscatory taxation,
withholding and other foreign taxes on income or other amounts, foreign exchange
controls (which may include suspension of the ability to transfer currency from
a given country), default in foreign government securities, political or social
instability, or diplomatic developments which could affect investments in
securities of issuers in foreign nations.
The Fund may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations, by
exchange control regulations and by indigenous economic and political
developments. Some countries in which the Fund may invest may also have fixed or
managed currencies that are not free-floating against the U.S. dollar. Further,
certain currencies may not be internationally traded.
Certain of these currencies have experienced a steady devaluation relative to
the U.S. dollar. Any devaluations in the currencies in which the Fund's
portfolio securities are denominated may have a detrimental impact on the Fund.
Through the flexible policy of the Fund, Global Advisors endeavors to avoid
unfavorable consequences and to take advantage of favorable developments in
particular nations where from time to time it places the investments of the
Fund.
The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses.
The Board considers at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of the Fund's assets maintained with custodians in foreign countries,
as well as the degree of risk from political acts of foreign governments to
which such assets may be exposed. The Board also considers the degree of risk
involved through the holding of portfolio securities in domestic and foreign
securities depositories (see "Investment Management and Other Services --
Shareholder Servicing Agent and Custodian"). However, in the absence of willful
misfeasance, bad faith or gross negligence on the part of Global Advisors, any
losses resulting from the holding of the Fund's portfolio securities in foreign
countries and/or with securities depositories will be at the risk of the
shareholders. No assurance can be given that the Board's appraisal of the risks
will always be correct or that such exchange control restrictions or political
acts of foreign governments might not occur.
LOWER-RATED SECURITIES. Bonds rated Caa by Moody's are of poor standing. Such
securities may be in default or there may be present elements of danger with
respect to principal or interest. Bonds rated CCC by S&P are regarded, on
balance, as speculative. Such securities will have some quality and protective
characteristics, but these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Although they may offer higher yields than do higher rated securities, low rated
and unrated debt securities generally involve greater volatility of price and
risk to principal and income, including the possibility of default by, or
bankruptcy of, the issuers of the securities. In addition, the markets in which
low rated and unrated debt securities are traded are more limited than those in
which higher rated securities are traded. The existence of limited markets for
particular securities may diminish the Fund's ability to sell the securities at
fair value either to meet redemption requests or to respond to a specific
economic event such as a deterioration in the creditworthiness of the issuer.
Reduced secondary market liquidity for certain low rated or unrated debt
securities may also make it more difficult for the Fund to obtain accurate
market quotations for the purposes of valuing the Fund's portfolio. Market
quotations are generally available on many low rated or unrated securities only
from a limited num- ber of dealers and may not necessarily represent firm bids
of such dealers or prices for actual sales.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of low rated debt securities,
especially in a thinly traded market. Analysis of the creditworthiness of
issuers of low rated debt securities may be more complex than for issuers of
higher rated securities, and the ability of the Fund to achieve its investment
goal may, to the extent of investment in low rated debt securities, be more
dependent upon such creditworthiness analysis than would be the case if the Fund
were investing in higher rated securities.
Low rated debt securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of low rated debt securities have been found to be less sensitive to
interest rate changes than higher rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. A projection of
an economic downturn or of a period of rising interest rates, for example, could
cause a decline in low rated debt securities prices because the advent of a
recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of low
rated debt securities defaults, the Fund may incur additional expenses to seek
recovery.
The Fund may accrue and report interest on high yield bonds structured as zero
coupon bonds or pay-in-kind securities as income even though it receives no cash
interest until the security's maturity or payment date. In order to qualify for
beneficial tax treatment afforded regulated investment companies, the Fund must
distribute substantially all of its income to shareholders (see "Additional
Information on Distributions and Taxes"). Thus, the Fund may have to dispose of
its portfolio securities under disadvantageous circumstances to generate cash in
order to satisfy the distribution requirement.
INVESTMENT RESTRICTIONS
- -------------------------------------------------------------------------------
The Fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the 1940 Act, this means the
approval of (i) more than 50% of the outstanding shares of the Fund or (ii) 67%
or more of the shares of the Fund present at a shareholder meeting if more than
50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy, whichever is less.
The Fund MAY NOT:
1. Invest in real estate or mortgages on real estate (although the Fund may
invest in marketable securities secured by real estate or interests
therein or issued by companies or investment trusts which invest in real
estate or interests therein); invest in other open-end investment
companies; invest in interests (other than debentures or equity stock
interests) in oil, gas or other mineral exploration or development
programs; or purchase or sell commodity contracts.
2. Purchase or retain securities of any company in which directors or
officers of the Company or of Global Advisors, individually owning more
than of 1% of the securities of such company, in the aggregate own more
than 5% of the securities of such company.
3. Purchase more than 10% of any class of securities of any one company,
including more than 10% of its outstanding voting securities, or invest
in any company for the purpose of exercising control or management.
4. Act as an underwriter; issue senior securities; purchase on margin or
sell short; or write, buy or sell puts, calls, straddles or spreads.
5. Loan money apart from the purchase of a portion of an issue of publicly
distributed bonds, debentures, notes and other evidences of indebtedness,
although the Fund may buy from a bank or broker-dealer U.S. government
obligations with a simultaneous agreement by the seller to repurchase
them within no more than seven days at the original purchase price plus
accrued interest.
6. Borrow money for any purpose other than redeeming its shares or
purchasing its shares for cancellation, and then only as a temporary
measure up to an amount not exceeding 5% of the value of its total
assets; or pledge, mortgage or hypothecate its assets for any purpose
other than to secure such borrowings, and then only up to such extent not
exceeding 10% of the value of its total assets as the Board may by
resolution approve. As an operating policy approved by the Board, the
Fund will not pledge, mortgage or hypothecate its assets to the extent
that at any time the percentage of pledged assets plus the sales
commission will exceed 10% of the Offering Price of the shares the Fund.
7. Invest more than 5% of the value of the Fund's total assets in securities
of issuers which have been in continuous operation less than three years.
8. Invest more than 5% of the Fund's total assets in warrants, whether or
not listed on the NYSE or the American Stock Exchange, including no more
than 2% of its total assets which may be invested in warrants that are
not listed on those exchanges. Warrants acquired by the Fund in units or
attached to securities are not included in this restriction. This
restriction does not apply to options on securities indices.
9. Invest more than 15% of the Fund's total assets in securities of foreign
issuers which are not listed on a recognized U.S. or foreign securities
exchange, including no more than 10% of its total assets (including
warrants) which may be invested in securities with a limited trading
market. The Fund's position in the latter type of securities may be of
such size as to affect adversely their liquidity and marketability and
the Fund may not be able to dispose of its holdings in these securities
at the current market price.
10. Invest more than 25% of the Fund's total assets in a single industry.
11. Invest in "letter stocks" or securities on which there are any sales
restrictions under a purchase agreement.
12. Participate on a joint or a joint and several basis in any trading
account in securities. (See "How Does the Fund Buy Securities for Its
Portfolio?" as to transactions in the same securities for the Fund, other
clients and/or other mutual funds within the Franklin Templeton Group of
Funds.)
The Fund may also be subject to investment limitations imposed by foreign
jurisdictions in which the Fund sells its shares.
If a bankruptcy or other extraordinary event occurs concerning a particular
security owned by the Fund, the Fund may receive stock, real estate, or other
investments that the Fund would not, or could not, buy. In this case, the Fund
intends to dispose of the investment as soon as practicable while maximizing the
return to shareholders.
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in the value or liquidity of
portfolio securities or the amount of assets will not be considered a violation
of any of the foregoing restrictions. Nothing in the investment policy or
investment restrictions (except restrictions 9 and 10) shall be deemed to
prohibit the Fund from purchasing securities pursuant to subscription rights
distributed to the Fund by any issuer of securities held at the time in its
portfolio (as long as such purchase is not contrary to the Fund's status as a
diversified investment company under the 1940 Act).
OFFICERS AND DIRECTORS
- ------------------------------------------------------------------------------
The Board has the responsibility for the overall management of the Fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the Fund who are responsible for
administering the Fund's day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
Fund under the 1940 Act are indicated by an asterisk (*).
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME, AGE AND ADDRESS WITH THE FUND PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
----------------------------------- -------------------------- ----------------------------------------------------
<S> <C> <C>
HARRIS J. ASHTON Director Chairman of the board, president and chief
Metro Center executive officer of General Host Corporation
1 Station Place (nursery and craft centers); director of RBC
Stamford, Connecticut Holdings Inc. (a bank holding company) and
Age 65 Bar-S Foods (a meat packing company); and
director or trustee of 52 of the investment
companies in the Franklin Templeton Group of
Funds.
-------------------------------- --------------------- ---------------------------------------------
* NICHOLAS F. BRADY Director Chairman of Templeton Emerging Markets
The Bullitt House Investment Trust PLC; chairman of Templeton Latin
102 East Dover Street America Investment Trust PLC; chairman of
Easton, Maryland Darby Overseas Investments, Ltd. and Darby
Age 67 Emerging Markets Investments LDC (investment firms)
(1994-present); chairman and director of
Templeton Central and Eastern European
Investment Company; director of the Templeton
Global Strategy Funds, Amerada Hess
Corporation, Christiana Companies, and the H.J.
Heinz Company; formerly, Secretary of the United
States Department of the Treasury (1988-1993)
and chairman of the board of Dillon, Read & Co.,
Inc.(investment banking) prior to 1988; and
director or trustee of 23 of the investment
companies in the Franklin Templeton
Group of Funds.
------------------------------- ---------------------- -------------------------------------------------------------------
S. JOSEPH FORTUNATO Director Member of the law firm of Pitney, Hardin,
200 Campus Drive Kipp& Szuch; director of General Host
Florham Park, New Jersey Corporation (nursery and craft centers); and
Age 65 director or trustee of 54 of the investment
companies in the Franklin Templeton Group of
Funds.
-------------------------------- --------------------- ---------------------------------------------
JOHN Wm. GALBRAITH Director President of Galbraith Properties, Inc.
360 Central Avenue (personal investment company); director of
Suite 1300 GulfWest Banks, Inc. (bank holding company)
St. Petersburg, Florida (1995-present); formerly, director of
Age 76 Mercantile Bank (1991-1995), vice chairman
of Templeton, Galbraith & Hansberger Ltd.
(1986-1992) and chairman of Templeton Funds
Management, Inc. (1974-1991); and director
or trustee of 22 of the investment companies
in the Franklin Templeton Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
ANDREW H. HINES, JR. Director Consultant for the Triangle Consulting
150 Second Avenue N. Group; executive-in-residence of Eckerd College
St. Petersburg, Florida (1991-present); formerly, chairman of the
Age 74 board and chief executive officer of Florida
Progress Corporation (1982-1990) and director of
various of its subsidiaries; and director or
trustee of 24 of the investment companies in the
Franklin Templeton Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
* CHARLES B. JOHNSON Chairman of the President, chief executive officer and
777 Mariners Island Blvd. Board and Vice director of Franklin Resources, Inc.; chairman of
San Mateo, California President the board and director of Franklin Advisers,
Age 64 Inc., Franklin Investment Advisory Services, Inc.,
Franklin Advisory Services, Inc. and
Franklin Templeton Distributors, Inc.; director of
Franklin/Templeton Investor Services, Inc.,
Franklin Templeton Services, Inc.and General
Host Corporation (nursery and craft centers);
and officer and/or director or trustee, as
the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and
53 of the investment companies in the Franklin
Templeton Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
RUPERT H. JOHNSON, JR. Director and Executive vice president and director of
777 Mariners Island Blvd. Vice President Franklin Resources, Inc. and Franklin Templeton
San Mateo, California Distributors, Inc.; president and director of
Age 57 Franklin Advisers, Inc.; senior vice
president and director of Franklin Advisory Services,
Inc. and Franklin Investment Advisory Services,
Inc.; director of Franklin/Templeton Investor
Services, Inc.; and officer and/or director or
trustee, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and 57
of the investment companies in the Franklin
Templeton Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
BETTY P. KRAHMER Director Director or trustee of various civic
2201 Kentmere Parkway associations; formerly, economic analyst,
Wilmington, Delaware U.S.government; and director or trustee of 23 of
Age 68 the investment companies in the Franklin
Templeton Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
GORDON S. MACKLIN Director Chairman of White River Corporation (financial
8212 Burning Tree Road services); director of Fund American
Bethesda, Maryland Enterprises Holdings, Inc., MCI Communications
Age 69 Corporation, CCC Information Services Group,
Inc. (information services), MedImmune, Inc.
(biotechnology), Shoppers Express (home
shopping) and Spacehab, Inc. (aerospace
services); formerly, chairman of Hambrecht
and Quist Group, director of H&Q Healthcare
Investors and president of the National
Association of Securities Dealers, Inc.; and
director or trustee of 51 of the investment
companies in the Franklin Templeton Group of
Funds.
-------------------------------- --------------------- ---------------------------------------------
FRED R. MILLSAPS Director Manager of personal investments (1978-present);
2665 N.E. 37th Drive director of various business and nonprofit
Fort Lauderdale, Florida organizations; formerly, chairman and chief
Age 68 executive officer of Landmark Banking
Corporation (1969-1978), financial vice
president of Florida Power and Light
(1965-1969), and vice president of the Federal
Reserve Bank of Atlanta (1958-1965); and director
or trustee of 24 of the investment companies in
the Franklin Templeton Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
MARK G. HOLOWESKO President President and chief investment officer of
Lyford Cay Templeton Global Advisors Limited; executive
Nassau, Bahamas vice president and director of Templeton
Age 37 Worldwide, Inc.; formerly, investment
administrator with RoyWest Trust Corporation
(Bahamas) Limited (1984-1985); and officer
of 23 of the investment companies in
the Franklin Templeton Group of Funds.
------------------------------- ---------------------- -------------------------------------------------------------------
HARMON E. BURNS Vice President Executive vice president, secretary and
777 Mariners Island Blvd. director of Franklin Resources, Inc.
San Mateo, California executive vice president and director of Franklin
Age 52 Templeton Distributors, Inc. and Franklin
Templeton Services, Inc.; executive vice
president of Franklin Advisers, Inc.;
director of Franklin/Templeton Investor Services,
Inc.; and officer and/or director or trustee, as
the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and 57 of the
investment companies in the Franklin Templeton
Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
CHARLES E. JOHNSON Vice President Senior vice president and director of
500 East Broward Blvd. Franklin Resources, Inc.; senior vice president of
Fort Lauderdale, Florida Franklin Templeton Distributors, Inc.;
Age 41 president and director of Templeton Worldwide,
Inc.; president, chief executive officer,chief
investment officer and director of Franklin
Institutional Services Corporation; chairman and
director of Templeton Investment Counsel,
Inc.; vice president of Franklin Advisers,
Inc.; officer and/or director of some of the
other subsidiaries of Franklin Resources, Inc.; and
officer and/or director or trustee, as the case may
be, of 37 of the investment companies in the Franklin
Templeton Group of Funds.
------------------------------- ---------------------- -------------------------------------------------------------------
DEBORAH R. GATZEK Vice President Senior vice president and general counsel of
777 Mariners Island Blvd. Franklin Resources, Inc.; senior vice
San Mateo, California president of Franklin Templeton Services, Inc.
Age 49 and Franklin Templeton Distributors, Inc.; vice
president of Franklin Advisers, Inc. and Franklin
Advisory Services, Inc.; vice president, chief legal
officer and chief operating officer of Franklin
Investment Advisory Services, Inc.; and officer of
57 of the investment companies in the Franklin
Templeton Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
MARTIN L. FLANAGAN Vice President Senior vice president and chief financial
777 Mariners Island Blvd. officer of Franklin Resources, Inc.; director
San Mateo, California and executive vice president of Templeton
Age 37 Worldwide, Inc.; director, executive vice
president and chief operating officer of
Templeton Investment Counsel, Inc.; senior
vice president and treasurer of Franklin
Advisers, Inc.; treasurer of Franklin Advisory
Services, Inc.; treasurer and chief financial
officer of Franklin Investment Advisory
Services, Inc.;president of Franklin Templeton
Services, Inc.; senior vice president of Franklin/Templeton
Investor Services, Inc.; and officer and/or
director or trustee, as the case may be, of
57 of the investment companies in the Franklin
Templeton Group of Funds.
------------------------------- ---------------------- -------------------------------------------------------------------
JEFFREY A. EVERETT Vice President Executive vice president, portfolio management
Lyford Cay of Templeton Global Advisors Limited; formerly,
Nassau, Bahamas investment officer at First Pennsylvania
Age 33 Investment Research (until 1989); and officer
of 2 of the investment companies in the
Franklin Templeton Group of Funds.
------------------------------- ---------------------- -------------------------------------------------------------------
JOHN R. KAY Vice President Vice president and treasurer of Templeton
500 East Broward Blvd. Worldwide, Inc.; assistant vice president of
Fort Lauderdale, Florida Franklin Templeton Distributors, Inc.;
Age 57 formerly, vice president and controller of
the Keystone Group, Inc.; and officer
of 27 of the investment companies in
the Franklin Templeton Group of Funds.
------------------------------- ---------------------- -------------------------------------------------------------------
ELIZABETH M. KNOBLOCK Vice President- General counsel, secretary and a senior vice
500 East Broward Blvd. Compliance president of Templeton Investment Counsel,
Fort Lauderdale, Florida Inc.; senior vice president of Templeton Global
Age 42 Investors, Inc.; formerly, vice president
and associate general counsel of Kidder Peabody
& Co. Inc. (1989-1990), assistant general counsel
of Gruntal & Co., Inc. (1988), vice president
and associate general counsel of Shearson
Lehman Hutton Inc. (1988), vice president and
assistant general counsel of E.F. Hutton & Co.
Inc. (1986-1988), and special counsel of the
Division of Investment Management of the U.S.
Securities and Exchange Commission(1984-1986);
and officer of 23 of the investment companies in
the Franklin Templeton Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
JAMES R. BAIO Treasurer Certified public accountant; treasurer of
500 East Broward Blvd. Franklin Mutual Advisers, Inc.; senior vice
Fort Lauderdale, Florida president of Templeton Worldwide, Inc.,
Age 43 Templeton Global Investors, Inc. and
Templeton Funds Trust Company; formerly, senior
tax manager with Ernst & Young (certified public
accountants) (1977-1989); and treasurer
of 24 of the investment companies in the Franklin
Templeton Group of Funds.
-------------------------------- --------------------- ---------------------------------------------
BARBARA J. GREEN Secretary Senior vice president of Templeton Worldwide,
500 East Broward Blvd. Inc. and an officer of other subsidiaries of
Fort Lauderdale, Florida Templeton Worldwide, Inc.; senior vice
Age 50 president of Templeton Global Investors,
Inc.; formerly, deputy director of the Division
of Investment Management, executive assistant and
senior advisor to the chairman, counsellor to
the chairman, special counsel and attorney
fellow, U.S. Securities and Exchange Commission
(1986-1995), attorney, Rogers & Wells, and
judicial clerk, U.S. District Court (District of
Massachusetts); and secretary of 23 of the
investment companies in the Franklin Templeton
Group of Funds.
-------------------------------- --------------------- ---------------------------------------
</TABLE>
* Nicholas F. Brady, Rupert H. Johnson, Jr. and Charles B. Johnson are
"interested persons" of the Company under the 1940 Act, which limits the
percentage of interested persons that can comprise a fund's board. Charles B.
Johnson and Rupert H. Johnson, Jr. are interested persons due to their ownership
interest in Resources. Mr. Brady's status as an interested person results from
his business affiliations with Resources and Global Advisors. Mr. Brady and
Resources are both limited partners of Darby Overseas Partners, L.P. ("Darby
Overseas"). Mr. Brady established Darby Overseas in February 1994, and is
Chairman and shareholder of the corporate general partner of Darby Overseas. In
addition, Darby Overseas and Global Advisors are limited partners of Darby
Emerging Markets Fund, L.P. The remaining Board members of the Company are not
interested persons.
The table above shows the officers and Board members who are affiliated with
Distributors and Global Advisors. Nonaffiliated members of the Board and Mr.
Brady are currently paid an annual retainer and/or fees for attendance at Board
and committee meetings. Currently, the Company pays the nonaffiliated Board
members and Mr. Brady an annual retainer of $12,500, a fee of $950 per Board
meeting, and its portion of a flat fee of $2,000 for each audit committee
meeting and/or nominating and compensation committee meeting attended. As shown
above, some of the nonaffiliated Board members also serve as directors or
trustees of other investment companies in the Franklin Templeton Group of Funds.
They may receive fees from these funds for their services. The following table
provides the total fees paid to nonaffiliated Board members and Mr. Brady by the
Company and by other funds in the Franklin Templeton Group of Funds.
<TABLE>
<CAPTION>
TOTAL FEES NUMBER OF BOARDS IN
TOTAL FEES RECEIVED FROM THE THE FRANKLIN TEMPLETON
RECEIVED FROM FRANKLIN TEMPLETON GROUP OF FUNDS ON
THE GROUP OF WHICH EACH
NAME COMPANY(1) FUNDS(2) SERVES(3)
-------------------- ------------------- ------------------- -----------------------
<S> <C> <C> <C>
Harris J. Ashton... $16,300 $ 339,842 52
Nicholas F. Brady.. 16,300 119,675 23
S. Joseph Fortunato 16,300 356,762 54
John Wm. Galbraith. 17,420 117,675 22
Andrew H. Hines, Jr 17,420 144,175 24
Betty P. Krahmer... 16,300 119,675 23
Gordon S. Macklin.. 16,300 332,492 51
Fred R. Millsaps... 17,420 144,175 24
</TABLE>
(1) For the fiscal year ended August 31, 1997.
(2) For the calendar year ended December 31, 1997.
(3) We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not include
the total number of series or funds within each investment company for which the
Board members are responsible. The Franklin Templeton Group of Funds currently
includes 59 registered investment companies, with approximately 172 U.S. based
funds or series.
Nonaffiliated members of the Board and Mr. Brady are reimbursed for expenses
incurred in connection with attending board meetings, paid pro rata by each fund
in the Franklin Templeton Group of Funds for which they serve as director or
trustee. No officer or Board member received any other compensation, including
pension or retirement benefits, directly or indirectly from the Fund or other
funds in the Franklin Templeton Group of Funds. Certain officers or Board
members who are shareholders of Resources may be deemed to receive indirect
remuneration by virtue of their participation, if any, in the fees paid to its
subsidiaries.
As of November 26, 1997, the officers and Board members, as a group, owned of
record and beneficially the following shares of the Fund: approximately 254,557
Class I shares and 38,721 Advisor Class shares, or less than 1% of the total
outstanding Class I and Advisor Class shares of the Fund. Many of the Board
members also own shares in other funds in the Franklin Templeton Group of Funds.
Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father and
uncle, respectively, of Charles E. Johnson.
INVESTMENT MANAGEMENT AND OTHER SERVICES
- ------------------------------------------------------------------------------
INVESTMENT MANAGER AND SERVICES PROVIDED. The Fund's investment manager is
Global Advisors. Global Advisors provides investment research and portfolio
management services, including the selection of securities for the Fund to buy,
hold or sell and the selection of brokers through whom the Fund's portfolio
transactions are executed. Global Advisors renders its services to the Fund from
outside the U.S. and its activities are subject to the review and supervision of
the Board to whom Global Advisors renders periodic reports of the Fund's
investment activities. Global Advisors and its officers, directors and employees
are covered by fidelity insurance for the protection of the Fund.
Global Advisors and its affiliates act as investment manager to numerous other
investment companies and accounts. Global Advisors may give advice and take
action with respect to any of the other funds it manages, or for its own
account, that may differ from action taken by Global Advisors on behalf of the
Fund. Similarly, with respect to the Fund, Global Advisors is not obligated to
recommend, buy or sell, or to refrain from recommending, buying or selling any
security that Global Advisors and access persons, as defined by the 1940 Act,
may buy or sell for its or their own account or for the accounts of any other
fund. Global Advisors is not obligated to refrain from investing in securities
held by the Fund or other funds that it manages. Of course, any transactions for
the accounts of Global Advisors and other access persons will be made in
compliance with the Fund's Code of Ethics. Please see "Miscellaneous Information
- -- Summary of Code of Ethics."
MANAGEMENT FEES. Under its management agreement, the Fund pays Global Advisors a
monthly management fee equal to an annual rate of 0.75% of the average daily net
assets of the Fund up to the first $200,000,000, reduced to a fee of 0.675% of
such average daily net assets in excess of $200,000,000 up to $1,300,000,000 and
further reduced to a fee of 0.60% of such average daily net assets in excess of
$1,300,000,000. Each class pays it proportionate share of the management fee.
For the fiscal years ended August 31, 1997, 1996 and 1995, management fees
totaling $79,502,378, $51,600,846 and $36,110,792, respectively, were paid to
Global Advisors.
MANAGEMENT AGREEMENT. The management agreement is in effect until December 31,
1998. It may continue in effect for successive annual periods if its continuance
is specifically approved at least annually by a vote of the Board or by a vote
of the holders of a majority of the Fund's outstanding voting securities, and in
either event by a majority vote of the Board members who are not parties to the
management agreement or interested persons of any such party (other than as
members of the Board), cast in person at a meeting called for that purpose. The
management agreement may be terminated without penalty at any time by the Board
or by a vote of the holders of a majority of the Fund's outstanding voting
securities, or by Global Advisors on 60 days' written notice to the Fund, and
will automatically terminate in the event of its assignment, as defined in the
1940 Act.
ADMINISTRATIVE SERVICES. FT Services provides certain administrative services
and facilities for the Fund. These include preparing and maintaining books,
records, and tax and financial reports, and monitoring compliance with
regulatory requirements. FT Services is a wholly owned subsidiary of Resources.
Under its administration agreement, the Company pays FT Services a monthly
administration fee equal to an annual rate of 0.15% of the Company's average
daily net assets up to $200 million, 0.135% of average daily net assets over
$200 million up to $700 million, 0.10% of average daily net assets over $700
million up to $1.2 billion, and 0.075% of average daily net assets over $1.2
billion. During the fiscal years ended August 31, 1997, 1996 and 1995, the
Company paid administration fees totaling $16,145,466, $11,564,072 and
$8,965,630, respectively.
SHAREHOLDER SERVICING AGENT. Investor Services, a wholly owned subsidiary of
Resources, is the Fund's shareholder servicing agent and acts as the Fund's
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account. The Fund may also reimburse Investor
Services for certain out-of-pocket expenses, which may include payments by
Investor Services to entities, including affiliated entities, that provide
sub-shareholder services, recordkeeping and/or transfer agency services to
beneficial owners of the Fund. The amount of reimbursements for these services
per benefit plan participant Fund account per year may not exceed the per
account fee payable by the Fund to Investor Services in connection with
maintaining shareholder accounts.
CUSTODIAN. The Chase Manhattan Bank, at its principal office at MetroTech
Center, Brooklyn, New York 11245, and at the offices of its branches and
agencies throughout the world, acts as custodian of the Fund's assets. The
custodian does not participate in decisions relating to the purchase and sale of
portfolio securities.
AUDITORS. McGladrey & Pullen, LLP, 555 Fifth Avenue, New York, New York 10017,
are the Fund's independent auditors. During the fiscal year ended August 31,
1997, their auditing services consisted of rendering an opinion on the financial
statements of the Fund included in the Fund's Annual Report to Shareholders for
the fiscal year ended August 31, 1997, and review of the Fund's filings with the
SEC.
HOW DOES THE FUND BUY SECURITIES
FOR ITS PORTFOLIO?
- -------------------------------------------------------------------------------
Global Advisors selects brokers and dealers to execute the Fund's portfolio
transactions in accordance with criteria set forth in the management agreement
and any directions that the Board may give.
When placing a portfolio transaction, Global Advisors seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio transactions
on a securities exchange, the amount of commission paid by the Fund is
negotiated between Global Advisors and the broker executing the transaction. The
determination and evaluation of the reasonableness of the brokerage commissions
paid are based to a large degree on the professional opinions of the persons
responsible for placement and review of the transactions. These opinions are
based on the experience of these individuals in the securities industry and
information available to them about the level of commissions being paid by other
institutional investors of comparable size. Global Advisors will ordinarily
place orders to buy and sell over-the-counter securities on a principal rather
than agency basis with a principal market maker unless, in the opinion of Global
Advisors, a better price and execution can otherwise be obtained. Purchases of
portfolio securities from underwriters will include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers will include a
spread between the bid and ask price.
Global Advisors may pay certain brokers commissions that are higher than those
another broker may charge, if Global Advisors determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and research
services it receives. This may be viewed in terms of either the particular
transaction or Global Advisors' overall responsibilities to client accounts over
which it exercises investment discretion. The services that brokers may provide
to Global Advisors include, among others, supplying information about particular
companies, markets, countries, or local, regional, national or transnational
economies, statistical data, quotations and other securities pricing
information, and other information that provides lawful and appropriate
assistance to Global Advisors in carrying out its investment advisory
responsibilities. These services may not always directly benefit the Fund. They
must, however, be of value to Global Advisors in carrying out its overall
responsibilities to its clients.
It is not possible to place a dollar value on the special executions or on the
research services Global Advisors receives from dealers effecting transactions
in portfolio securities. The allocation of transactions in order to obtain
additional research services permits Global Advisors to supplement its own
research and analysis activities and to receive the views and information of
individuals and research staffs of other securities firms. As long as it is
lawful and appropriate to do so, Global Advisors and its affiliates may use this
research and data in their investment advisory capacities with other clients. If
the Fund's officers are satisfied that the best execution is obtained, the sale
of Fund shares, as well as shares of other funds in the Franklin Templeton Group
of Funds, may also be considered a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
Because Distributors is a member of the NASD, it may sometimes receive certain
fees when the Fund tenders portfolio securities pursuant to a tender- offer
solicitation. As a means of recapturing brokerage for the benefit of the Fund,
any portfolio securities tendered by the Fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next management
fee payable to Global Advisors will be reduced by the amount of any fees
received by Distributors in cash, less any costs and expenses incurred in
connection with the tender.
If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by Global Advisors are considered at or about
the same time, transactions in these securi- ties will be allocated among the
several investment companies and clients in a manner deemed equitable to all by
Global Advisors, taking into account the respective sizes of the funds and the
amount of securities to be purchased or sold. In some cases this procedure could
have a detrimental effect on the price or volume of the security so far as the
Fund is concerned. In other cases it is possible that the ability to participate
in volume transactions and to negotiate lower brokerage commissions will be
beneficial to the Fund.
Sale or purchase of securities, without payment of brokerage commissions, fees
(except customary transfer fees) or other remuneration in connection therewith,
may be effected between any of these funds, or between funds and private
clients, under procedures adopted pursuant to Rule 17a-7 under the 1940 Act.
During the fiscal years ended August 31, 1997, 1996 and 1995, the Fund paid
brokerage commissions totaling $20,265,126, $10,641,000 and $11,925,138,
respectively.
As of August 31, 1997, the Fund did not own securities of its regular
broker-dealers.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION ON BUYING SHARES
The Fund continuously offers its shares through Securities Dealers who have an
agreement with Distributors. Securities laws of states where the Fund offers its
shares may differ from federal law. Banks and financial institutions that sell
shares of the Fund may be required by state law to register as Securities
Dealers.
When you buy shares, if you submit a check or a draft that is returned unpaid to
the Fund we may impose a $10 charge against your account for each returned item.
OTHER PAYMENTS TO SECURITIES DEALERS. Distributors and/or its affiliates provide
financial support to various Securities Dealers that sell shares of the Franklin
Templeton Group of Funds. This support is based primarily on the amount of sales
of fund shares. The amount of support may be affected by: total sales; net
sales; levels of redemptions; the proportion of a Securities Dealer's sales and
marketing efforts in the Franklin Templeton Group of Funds; a Securities
Dealer's support of, and participation in, Distributors' marketing programs; a
Securities Dealer's compensation programs for its registered representatives;
and the extent of a Securities Dealer's marketing programs relating to the
Franklin Templeton Group of Funds. Financial support to Securities Dealers may
be made by payments from Distributors' resources, from Distributors' retention
of underwriting concessions and, in the case of funds that have Rule 12b-1
plans, from payments to Distributors under such plans. In addition, certain
Securities Dealers may receive brokerage commissions generated by fund portfolio
transactions in accordance with the NASD's rules.
REINVESTMENT DATE. Shares acquired through the reinvestment of dividends will be
purchased at the Net Asset Value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The processing
date for the reinvestment of dividends may vary and does not affect the amount
or value of the shares acquired.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If you request the exchange of the total value of your account, declared but
unpaid income dividends and capital gain distributions will be exchanged into
the new fund and will be invested at Net Asset Value. Backup withholding and
information reporting may apply. Information regarding the possible tax
consequences of an exchange is included in the tax section in this SAI and in
the Prospectus.
If a substantial number of shareholders should, within a short period, sell
their shares of the Fund under the exchange privilege, the Fund might have to
sell portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the exchange
privilege may result in periodic large inflows of money. If this occurs, it is
the Fund's general policy to initially invest this money in short-term,
interest-bearing money market instruments, unless it is believed that attractive
investment opportunities consistent with the Fund's investment goal exist
immediately. This money will then be withdrawn from the short-term, money market
instruments and invested in portfolio securities in as orderly a manner as is
possible when attractive investment opportunities arise.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at Net Asset Value at the close of business on the day the request for
exchange is received in proper form. Please see "May I Exchange Shares for
Shares of Another Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
SYSTEMATIC WITHDRAWAL PLAN. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Payments under the plan will be made
from the redemption of an equivalent amount of shares in your account, generally
on the 25th day of the month in which a payment is scheduled. If the 25th falls
on a weekend or holiday, we will process the redemption on the next business
day.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.
The Fund may discontinue a systematic withdrawal plan by notifying you in
writing and will automatically discontinue a systematic withdrawal plan if all
shares in your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.
THROUGH YOUR SECURITIES DEALER. If you sell shares through your Securities
Dealer, it is your dealer's responsibility to transmit the order to the Fund in
a timely fashion. Any loss to you resulting from your dealer's failure to do so
must be settled between you and your Securities Dealer.
REDEMPTIONS IN KIND. The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the Fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net assets and you may incur brokerage fees in converting the securities
to cash. The Fund does not intend to redeem illiquid securities in kind. If this
happens, however, you may not be able to recover your investment in a timely
manner.
GENERAL INFORMATION
If dividend checks are returned to the Fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at Net Asset Value until we receive new instructions.
Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the Fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to find
you from your account. These costs may include a percentage of the account when
a search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the Fund must be denominated in U.S. dollars. We may, in our sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to your account for
the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank.
SPECIAL SERVICES. Investor Services may pay certain financial institutions that
maintain omnibus accounts with the Fund on behalf of numerous beneficial owners
for recordkeeping operations performed with respect to such owners. For each
beneficial owner in the omnibus account, the Fund may reimburse Investor
Services an amount not to exceed the per account fee that the Fund normally pays
Investor Services. These financial institutions may also charge a fee for their
services directly to their clients.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
HOW ARE FUND SHARES VALUED?
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We calculate the Net Asset Value per share as of the scheduled close of the
NYSE, generally 4:00 p.m. Eastern time, each day that the NYSE is open for
trading. As of the date of this SAI, the Fund is informed that the NYSE observes
the following holidays: New Year's Day, Martin Luther King Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
For the purpose of determining the aggregate net assets of the Fund, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued and dividends are recorded on the ex-dividend date. Portfolio securities
listed on a securities exchange or on the NASDAQ National Market System for
which market quotations are readily available are valued at the last quoted sale
price of the day or, if there is no such reported sale, within the range of the
most recent quoted bid and ask prices. Over-the-counter portfolio securities are
valued within the range of the most recent quoted bid and ask prices. Portfolio
securities that are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by Global Advisors.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
of the NYSE on each day that the NYSE is open. Trading in European or Far
Eastern securities generally, or in a particular country or countries, may not
take place on every NYSE business day. Furthermore, trading takes place in
various foreign markets on days that are not business days for the NYSE and on
which the Net Asset Value is not calculated. Thus, the calculation of the Net
Asset Value does not take place contemporaneously with the determination of the
prices of many of the portfolio securities used in the calculation and, if
events materially affecting the values of these foreign securities occur, the
securities will be valued at fair value as determined by management and approved
in good faith by the Board.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the scheduled close of the NYSE. The value of these securities used in computing
the Net Asset Value is determined as of such times. Occasionally, events
affecting the values of these securities may occur between the times at which
they are determined and the scheduled close of the NYSE that will not be
reflected in the computation of the Net Asset Value. If events materially
affecting the values of these securities occur during this period, the
securities will be valued at their fair value as determined in good faith by the
Board.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the Board. With the approval of the Board, the
Fund may utilize a pricing service, bank or Securities Dealer to perform any of
the above described functions.
ADDITIONAL INFORMATION ON
DISTRIBUTIONS AND TAXES
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DISTRIBUTIONS
1. DISTRIBUTIONS OF NET INVESTMENT INCOME. The Fund receives income generally in
the form of dividends, interest, original issue, market and acquisition
discount, and other income derived from its investments. This income, less
expenses incurred in the operation of the Fund, constitutes its net investment
income from which dividends may be paid to you. Any distributions by the Fund
from such income will be taxable to you as ordinary income, whether you take
them in cash or in additional shares.
2. DISTRIBUTIONS OF CAPITAL GAINS. The Fund may derive capital gains and losses
in connection with sales of its portfolio securities. Distributions derived from
the excess of net short-term capital gain over net long-term capital loss will
be taxable to you as ordinary income. Distributions paid from long-term capital
gains realized by the Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your shares in the Fund. Any net short-term
or long-term capital gains realized by the Fund (net of any capital loss
carryovers) generally will be distributed once each year, and may be distributed
more frequently, if necessary, in order to reduce or eliminate federal excise or
income taxes on the Fund.
Under the Taxpayer Relief Act of 1997 (the "1997 Act"), the Fund is required to
report the capital gain distributions paid to you from gains realized on the
sale of portfolio securities using the following categories:
o "28% RATE GAINS": gains resulting from securities sold by the Fund after
July 28, 1997 that were held for more than one year but not more than 18
months, and securities sold by the Fund before May 7, 1997 that were held
for more than one year. These gains will be taxable to individual investors
at a maximum rate of 28%.
o "20% RATE GAINS": gains resulting from securities sold by the Fund after
July 28, 1997 that were held for more than 18 months, and under a
transitional rule, securities sold by the Fund between May 7 and July 28,
1997 (inclusive) that were held for more than one year. These gains will be
taxable to individual investors at a maximum rate of 20% for individual
investors in the 28% or higher federal income tax brackets, and at a maximum
rate of 10% for investors in the 15% federal income tax bracket.
The Act also provides for a new maximum rate of tax on capital gains of 18% for
individuals in the 28% or higher federal income tax brackets and 8% for
individuals in the 15% bracket for "qualified 5-year gains." For individuals in
the 15% bracket, qualified 5-year gains are net gains on securities held for
more than 5 years which are sold after December 31, 2000. For individuals who
are subject to tax at higher rates, qualified 5-year gains are net gains on
securities which are purchased after December 31, 2000 and are held for more
than 5 years. Taxpayers subject to tax at the higher rates may also make an
election for shares held on January 1, 2001 to recognize gain on their shares in
order to qualify such shares as qualified 5-year property.
The Fund will advise you at the end of each calendar year of the amount of its
capital gain distributions paid during the calendar year that qualify for these
maximum federal tax rates. Additional information on reporting these
distributions on your personal income tax returns is available in Franklin
Templeton's Tax Information Handbook (call toll-free 1-800-342-5236). This
handbook has been revised to include 1997 Act tax law changes, and will be
available in January, 1998. Questions concerning each investor's personal tax
reporting should be addressed to the investor's personal tax advisor.
3. CERTAIN DISTRIBUTIONS PAID IN JANUARY. Distributions which are declared in
October, November or December and paid to you in January of the following year,
will be treated for tax purposes as if they had been received by you on December
31 of the year in which they were declared. The Fund will report this income to
you on your Form 1099-DIV for the year in which these distributions were
declared.
4. FOREIGN TAX CREDITS INCLUDED IN DISTRIBUTIONS. The Fund may be subject to
foreign withholding taxes on income from certain of its foreign securities. If
more than 50% of the total assets of the Fund at the end of its fiscal year are
invested in securities of foreign corporations, the Fund may elect to
pass-through to you your pro rata share of foreign taxes paid by the Fund. If
this election is made, you will be (i) required to include in your gross income
your pro rata share of foreign source income (including any foreign taxes paid
by the Fund), and (ii) entitled to either deduct your share of such foreign
taxes in computing your taxable income or to claim a credit for such taxes
against your U.S. income tax, subject to certain limitations under the Code. If
the Fund elects to pass through to you the foreign income taxes that it has
paid, you will be informed at the end of the calendar year of the amount of
foreign taxes paid and foreign source income that must be included on your
federal income tax return. If the Fund invests 50% or less of its total assets
in securities of foreign corporations, it will not be entitled to pass-through
to you your pro-rata share of the foreign taxes paid by the Fund. In this case,
these taxes will be taken as a deduction by the Fund, and the income reported to
you will be the net amount after these deductions.
The 1997 Act also simplifies the procedures by which investors in funds that
invest in foreign securities can claim tax credits on their individual income
tax returns for the foreign taxes paid by the Fund. These provisions will allow
investors who claim a credit for foreign taxes paid of $300 or less on a single
return or $600 or less on a joint return during any year (all of which must be
reported on IRS Form 1099-DIV from the Fund to the investor) to bypass the
burdensome and detailed reporting requirements on the supporting foreign tax
credit schedule (Form 1116), and report foreign taxes paid directly on page 2 of
Form 1040. YOU SHOULD NOTE THAT THIS SIMPLIFIED PROCEDURE WILL NOT BE AVAILABLE
UNTIL CALENDAR YEAR 1998.
5. INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS. The Fund will inform you
of the amount and character of your distributions at the time they are paid, and
will advise you of the tax status for federal income tax purposes of such
distributions shortly after the close of each calendar year. Shareholders who
have not held Fund shares for a full year may have designated and distributed to
them as ordinary income or capital gain a percentage of income that is not equal
to the actual amount of such income earned during the period of their investment
in the Fund.
TAXES
1. ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY. In order to qualify
as a regulated investment company for tax purposes, the Fund must meet certain
specific requirements, including:
o The Fund must maintain a diversified portfolio of securities, wherein no
security (other than U.S. Government securities and securities of other
regulated investment companies) can exceed 25% of the Fund's total assets,
and, with respect to 50% of the Fund's total assets, no investment (other
than cash and cash items, U.S. Government securities and securities of other
regulated investment companies) can exceed 5% the Fund's total assets;
o The Fund must derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the sale
or disposition of stock, securities or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities
or currencies; and
o The Fund must distribute to its shareholders at least 90% of its net
investment income and net tax-exempt income for each of its fiscal years.
2. EXCISE TAX DISTRIBUTION REQUIREMENTS. The Code requires the Fund to
distribute at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its capital gain net income earned during the twelve
month period ending October 31 (in addition to undistributed amounts from the
prior year) to you by December 31 of each year in order to avoid federal excise
taxes. The Fund intends to declare and pay sufficient dividends in December (or
in January that are treated by you as received in December), but can give no
assurances that its distributions will be sufficient to eliminate all such
taxes.
3. REDEMPTION OF FUND SHARES. Redemptions and exchanges of Fund shares are
taxable transactions for federal and state income tax purposes. The tax law
requires that you recognize a gain or loss in an amount equal to the difference
between your tax basis and the amount you received in exchange for your shares,
subject to the rules described below. If you hold your shares as a capital
asset, the gain or loss that you realize will be capital gain or loss, and will
be long-term for federal income tax purposes if you have held your shares for
more than one year at the time of redemption or exchange. Any loss incurred on
the redemption or exchange of shares held for six months or less will be treated
as a long-term capital loss to the extent of any long-term capital gains
distributed to you by the Fund on those shares. The holding periods and
categories of capital gain that apply under the 1997 Act are described above in
the DISTRIBUTIONS section.
All or a portion of any loss that you realize upon the redemption of your Fund
shares will be disallowed to the extent that you purchase other shares in the
Fund (through reinvestment of dividends or otherwise) within 30 days before or
after your share redemption. Any loss disallowed under these rules will be added
to your tax basis in the new shares purchased.
4. DEFERRAL OF BASIS. All or a portion of the sales charge that you paid for
your shares in the Fund will be excluded from your tax basis in any of shares
sold within 90 days of their purchase (for the purpose of determining gain or
loss upon the sale of such shares) if you reinvest the sales proceeds in the
Fund or in another Fund in the Franklin Templeton Group of Funds (R), and the
sales charge that would otherwise apply to your reinvestment is reduced or
eliminated because of your reinvestment with Franklin Templeton. The portion of
the sales charge excluded from your tax basis in the shares sold will equal the
amount that the sales charge is reduced on your reinvestment. Any portion of the
sales charge excluded from your tax basis in the shares sold will be added to
the tax basis of the shares you acquire from your reinvestment in another
Franklin Templeton fund.
5. U.S. GOVERNMENT OBLIGATIONS. Many states grant tax-free status to dividends
paid to you from interest earned on direct obligations of the U.S. Government,
subject in some states to minimum investment requirements that must be met by
the Fund. Investments in GNMA/FNMA securities, bankers' acceptances, commercial
paper and repurchase agreements collateralized by U.S. Government securities do
not generally qualify for tax-free treatment. At the end of each calendar year,
the Fund will provide you with the percentage of any dividends paid that may
qualify for tax-free treatment on your personal income tax return. You should
consult with your own tax advisor to determine the application of your state and
local laws to these distributions. Because the rules on exclusion of this income
are different for corporations, corporate shareholders should consult with their
corporate tax advisors about whether any of their distributions may be exempt
from corporate income or franchise taxes.
6. DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS. As a corporate shareholder,
you should note that only a small percentage of the dividends paid by the Fund
for the most recent calendar year qualified for the dividends-received
deduction. You will be permitted in some circumstances to deduct these qualified
dividends, thereby reducing the tax that you would otherwise be required to pay
on these dividends. The dividends-received deduction will be available only with
respect to dividends designated by the Fund as eligible for such treatment.
Dividends so designated by the Fund must be attributable to dividends earned by
the Fund from U.S. corporations that were not debt financed.
Under the 1997 Act, the amount that the Fund may designate as eligible for the
dividends-received deduction will be reduced or eliminated if the shares on
which the dividends were earned by the Fund were debt financed or held by the
Fund for less than a 46 day period during a 90 day period beginning 45 days
before the ex-dividend date of the corporate stock. Similarly, if your Fund
shares are debt financed or held by you for less than this same 46 day period,
then the dividends-received deduction may also be reduced or eliminated. Even if
designated as dividends eligible for the dividends-received deduction, all
dividends (including the deducted portion) must be included in your alternative
minimum taxable income calculation.
7. INVESTMENT IN COMPLEX SECURITIES. The Fund's investment in options, futures
contracts and forward contracts, including transactions involving actual or
deemed short sales or foreign exchange gains or losses are subject to many
complex and special tax rules. Over-the-counter options on debt securities and
equity options, including options on stock and on narrow-based stock indexes,
will be subject to tax under Section 1234 of the Code, generally producing a
long-term or short-term capital gain or loss upon exercise, lapse, or closing
out of the option or sale of the underlying stock or security. Certain other
options, futures and forward contracts entered into by the Fund are generally
governed by Section 1256 of the Code. These "Section 1256" positions generally
include listed options on debt securities, options on broad-based stock indexes,
options on securities indexes, options on futures contracts, regulated futures
contracts and certain foreign currency contracts and options thereon.
Absent a tax election to the contrary, each Section 1256 position held by the
Fund will be marked-to-market (I.E., treated as if it were sold for fair market
value) on the last business day of the Fund's fiscal year (and on other dates as
prescribed by the Code), and all gain or loss associated with fiscal year
transactions and mark-to-market positions at fiscal year end (except certain
currency gain or loss covered by Section 988 of the Code) will generally be
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. Under legislation pending in technical corrections to the 1997 Act, the
60% long-term capital gain portion will qualify as "20% rate gain" and will be
subject to tax to individual investors at a maximum rate of 20% for investors in
the 28% or higher federal income tax brackets, or at a maximum rate of 10% for
investors in the 15% federal income tax bracket. Even though marked-to-market,
gains and losses realized on foreign currency and foreign security investments
will generally be treated as ordinary income. The effect of Section 1256
mark-to-market rules may be to accelerate income or to convert what otherwise
would have been long-term capital gains into short-term capital gains or
short-term capital losses into long-capital losses within the Fund. The
acceleration of income on Section 1256 positions may require the Fund to accrue
taxable income without the corresponding receipt of cash. In order to generate
cash to satisfy the distribution requirements of the Code, the Fund may be
required to dispose of portfolio securities that it otherwise would have
continued to hold or to use cash flows from other sources such as the sale of
Fund shares. In these ways, any or all of these rules may affect the amount,
character and timing of income distributed to you by the Fund.
When the Fund holds an option or contract which substantially diminishes the
Fund's risk of loss with respect to another position of the Fund (as might occur
in some hedging transactions), this combination of positions could be treated as
a "straddle" for tax purposes, possibly resulting in deferral of losses,
adjustments in the holding periods and conversion of short-term capital losses
into long-term capital losses. The Fund may make certain tax elections for mixed
straddles (I.E., straddles comprised of at least one Section 1256 position and
at least one non-Section 1256 position) which may reduce or eliminate the
operation of these straddle rules.
The 1997 Act has also added new provisions for dealing with transactions that
are generally called "Constructive Sale Transactions." Under these rules, the
Fund must recognize gain (but not loss) on any constructive sale of an
appreciated financial position in stock, a partnership interest or certain debt
instruments. The Fund will generally be treated as making a constructive sale
when it: 1) enters into a short sale on the same property, 2) enters into an
offsetting notional principal contract, or 3) enters into a futures or forward
contract to deliver the same or substantially similar property. Other
transactions (including certain financial instruments called collars) will be
treated as constructive sales as provided in Treasury regulations to be
published. There are also certain exceptions that apply for transactions that
are closed before the end of the 30th day after the close of the taxable year.
8. INVESTMENTS IN FOREIGN CURRENCIES AND FOREIGN SECURITIES. The Fund is
authorized to invest in foreign currency denominated securities. Such
investments, if made, will have the following additional tax consequences:
Under the Code, gains and losses attributable to fluctuations in foreign
currency exchange rates which occur between the time the Fund accrues income
(including dividends), or accrues expenses, and the time the Fund actually
collects such income or pays such expenses generally are treated as ordinary
income or loss. Similarly, on the disposition of debt securities denominated in
a foreign currency and on the disposition of certain options, futures and
forward contracts, gain or loss attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security or contract and
the date its disposition also are treated as ordinary gain or loss. These gains
or losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of the Fund's net investment income, which, in
turn, will affect the amount of income to be distributed to you by the Fund.
If the Fund's Section 988 losses exceed the Fund's other net investment income
during a taxable year, the Fund generally will not be able to make ordinary
dividend distributions to you for that year, or distributions made before the
losses were realized will be recharacterized as return of capital distributions
for federal income tax purposes, rather than as an ordinary dividend or capital
gain distribution. If a distribution is treated as a return of capital, your tax
basis in your Fund shares will be reduced by a like amount (to the extent of
such basis), and any excess of the distribution over your tax basis in your Fund
shares will be treated as capital gain to you.
The 1997 Act generally requires that foreign income taxes be translated into
U.S. dollars at the average exchange rate for the tax year in which the taxes
are accrued. Certain exceptions apply to taxes paid or more than two years after
the taxable year to which they relate. This new law may require the Fund to
track and record adjustments to foreign taxes paid on foreign securities in
which it invests. Under the Fund's current reporting procedure, foreign taxes
paid are generally recorded at the time of each transaction using the foreign
currency spot rate available for the date of each payment. Under the new law,
the Fund will be required to record at fiscal year end (and at calendar year end
for excise tax purposes) an adjustment that reflects the difference between the
spot rates recorded for each payment and the year-end average exchange rate for
all of the Fund's foreign tax payments. There is a possibility that the mutual
fund industry will be given relief from this new provision, in which case no
year-end adjustments will be required.
9. INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANY SECURITIES. The Fund may
invest in shares of foreign corporations which may be classified under the Code
as passive foreign investment companies ("PFICs"). In general, a foreign
corporation is classified as a PFIC if at least one-half of its assets
constitute investment-type assets or 75% or more of its gross income is
investment-type income.
If the Fund receives an "excess distribution" with respect to PFIC stock, the
Fund itself may be subject to U.S. federal income tax on a portion of the
distribution, whether or not the corresponding income is distributed by the Fund
to you. In general, under the PFIC rules, an excess distribution is treated as
having been realized ratably over the period during which the Fund held the PFIC
shares. The Fund itself will be subject to tax on the portion, if any, of an
excess distribution that is so allocated to prior Fund taxable years, and an
interest factor will be added to the tax, as if the tax had been payable in such
prior taxable years. In this case, you would not be permitted to claim a credit
on your own tax return for the tax paid by the Fund. Certain distributions from
a PFIC as well as gain from the sale of PFIC shares are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions might
have been classified as capital gain. This may have the effect of increasing
Fund distributions to you that are treated as ordinary dividends rather than
long-term capital gain dividends.
The Fund may be eligible to elect alternative tax treatment with respect to PFIC
shares. Under an election that currently is available in some circumstances, the
Fund generally would be required to include in its gross income its share of the
earnings of a PFIC on a current basis, regardless of whether distributions are
received from the PFIC during such period. If this election were made, the
special rules, discussed above, relating to the taxation of excess
distributions, would not apply. In addition, the 1997 Act provides for another
election that would involve marking-to-market the Fund's PFIC shares at the end
of each taxable year (and on certain other dates as prescribed in the Code),
with the result that unrealized gains would be treated as though they were
realized. The Fund would also be allowed an ordinary deduction for the excess,
if any, of the adjusted basis of its investment in the PFIC stock over its fair
market value at the end of the taxable year. This deduction would be limited to
the amount of any net mark-to-market gains previously included with respect to
that particular PFIC security. If the Fund were to make this second PFIC
election, tax at the Fund level under the PFIC rules would generally be
eliminated.
The application of the PFIC rules may affect, among other things, the amount of
tax payable by the Fund (if any), the amounts distributable to you by the Fund,
the time at which these distributions must be made, and whether these
distributions will be classified as ordinary income or capital gain
distributions to you.
You should be aware that it is not always possible at the time shares of a
foreign corporation are acquired to ascertain that the foreign corporation is a
PFIC, and that there is always a possibility that a foreign corporation will
become a PFIC after the Fund acquires shares in that corporation. While the Fund
will generally seek to avoid investing in PFIC shares to avoid the tax
consequences detailed above, there are no guarantees that it will do so and it
reserves the right to make such investments as a matter of its fundamental
investment policy.
10. CONVERSION TRANSACTIONS. Gains realized by a Fund from transactions that are
deemed to be "conversion transactions" under the Code, and that would otherwise
produce capital gain may be recharacterized as ordinary income to the extent
that such gain does not exceed an amount defined as the "applicable imputed
income amount".
A conversion transaction is any transaction in which substantially all of the
Fund's expected return is attributable to the time value of the Fund's net
investment in such transaction, and any one of the following criteria are met:
1) there is an acquisition of property with a substantially contemporaneous
agreement to sell the same or substantially identical property in the
future;
2) the transaction is an applicable straddle;
3) the transaction was marketed or sold to the Fund on the basis that it would
have the economic characteristics of a loan but would be taxed as capital
gain; or
4) the transaction is specified in Treasury regulations to be promulgated in
the future.
The applicable imputed income amount, which represents the deemed return on the
conversion transaction based upon the time value of money, is computed using a
yield equal to 120 percent of the applicable federal rate, reduced by any prior
recharacterizations under this provision or the provisions of Section 263(g) of
the Code dealing with capitalized carrying costs.
11. STRIPPED PREFERRED STOCK. Occasionally, the Fund may purchase "stripped
preferred stock", that is subject to special tax treatment. Stripped preferred
stock is defined as certain preferred stock issues where ownership of the stock
has been separated from the right to receive dividends that have not yet become
payable. The stock must have a fixed redemption price, must not participate
substantially in the growth of the issuer, and must be limited and preferred as
to dividends. The difference between the redemption price and purchase price is
taken into Fund income over the term of the instrument as if it were original
issue discount. The amount that must be included in each period generally
depends on the original yield to maturity, adjusted for any prepayments of
principal.
THE FUND'S UNDERWRITER
- -------------------------------------------------------------------------------
Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering of the Fund's shares. The
underwriting agreement will continue in effect for successive annual periods if
its continuance is specifically approved at least annually by a vote of the
Board or by a vote of the holders of a majority of the Fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to the underwriting agreement or interested persons of any such
party (other than as members of the Board), cast in person at a meeting called
for that purpose. The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either party on 90 days'
written notice.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statement and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
Distributors does not receive compensation from the Fund for acting as
underwriter of the Fund's Advisor Class shares.
HOW DOES THE FUND MEASURE
PERFORMANCE?
- -------------------------------------------------------------------------------
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Average annual total return quotations used by the Fund are based on the
standardized methods of computing performance mandated by the SEC. If a Rule
12b-1 plan is adopted, performance figures reflect fees from the date of the
plan's implementation.
For periods before January 1, 1997, standardized performance quotations for
Advisor Class are calculated by substituting Class I performance for the
relevant time period, excluding the effect of Class I's maximum initial sales
charge, and including the effect of the Rule 12b-1 fees applicable to Class I
shares of the Fund. For periods after January 1, 1997, standardized performance
quotations for Advisor Class are calculated as described below.
An explanation of these and other methods used by the Fund to compute or express
performance follows. Regardless of the method used, past performance does not
guarantee future results, and is an indication of the return to shareholders
only for the limited historical period used.
TOTAL RETURN
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is determined by
finding the average annual rates of return over the periods indicated below that
would equate an initial hypothetical $1,000 investment to its ending redeemable
value. The calculation assumes income dividends and capital gain distributions
are reinvested at Net Asset Value. The quotation assumes the account was
completely redeemed at the end of each period and the deduction of all
applicable charges and fees. If a change is made to the sales charge structure,
historical performance information will be restated to reflect the maximum
front-end sales charge currently in effect.
The average annual total return for Advisor Class for the one-, five- and
ten-year periods ended August 31, 1997, was 19.76%, 13.86% and 11.64%,
respectively.
These figures were calculated according to the SEC formula:
P (1+T)(n) = ERV
where:
P = a hypothetical initial payment
of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment
made at the beginning of each period
at the end of each period
CUMULATIVE TOTAL RETURN. Like average annual total return, cumulative total
return assumes income dividends and capital gain distributions are reinvested at
Net Asset Value. Cumulative total return, however, is based on the actual return
for a specified period rather than on the average return over the periods
indicated above. The cumulative total return for Advisor Class for the one-,
five- and ten-year periods ended August 31, 1997, was 19.76%, 91.32% and
200.69%, respectively.
VOLATILITY
Occasionally statistics may be used to show the Fund's volatility or risk.
Measures of volatility or risk are generally used to compare the Fund's Net
Asset Value or performance to a market index. One measure of volatility is beta.
Beta is the volatility of a fund relative to the total market, as represented by
an index considered representative of the types of securities in which the fund
invests. A beta of more than 1.00 indicates volatility greater than the market
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of Net Asset Value or total return around an average over
a specified period of time. The idea is that greater volatility means greater
risk undertaken in achieving performance.
OTHER PERFORMANCE QUOTATIONS
Sales literature referring to the use of the Fund as a potential investment for
Individual Retirement Accounts (IRAs), Business Retirement Plans, and other
tax-advantaged retirement plans may quote a total return based upon compounding
of dividends on which it is presumed no federal income tax applies.
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Franklin Templeton Group of Funds. Resources is the parent company of the
advisors and underwriter of the Franklin Templeton Group of Funds.
COMPARISONS
To help you better evaluate how an investment in the Fund may satisfy your
investment objective, advertisements and other materials about the Fund may
discuss certain measures of Fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices, and averages. These
comparisons may include, but are not limited to, the following examples:
(i) unmanaged indices so that you may compare the Fund's results with those of a
group of unmanaged securities widely regarded by investors as representative of
the securities market in general; (ii) other groups of mutual funds tracked by
Lipper Analytical Services, Inc., a widely used independent research firm that
ranks mutual funds by overall performance, investment objectives and assets, or
tracked by other services, companies, publications, or persons who rank mutual
funds on overall performance or other criteria; and (iii) the Consumer Price
Index (measure for inflation) to assess the real rate of return from an
investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
From time to time, the Fund and Global Advisors may also refer to the following
information:
(a) Global Advisors' and its affiliates' market share of international equities
managed in mutual funds prepared or published by Strategic Insight or a
similar statistical organization.
(b) The performance of U.S. equity and debt markets relative to foreign markets
prepared or published by Morgan Stanley Capital International(R) or a
similar financial organization.
(c) The capitalization of U.S. and foreign stock markets as prepared or
published by the International Finance Corporation, Morgan
Stanley Capital International7 or a similar financial organization.
(d) The geographic and industry distribution of the Fund's portfolio and the
Fund's top ten holdings.
(e) The gross national product and populations, including age characteristics,
literacy rates, foreign investment improvements due to a liberalization of
securities laws and a reduction of foreign exchange controls, and improving
communication technology, of various countries as published by various
statistical organizations.
(f) To assist investors in understanding the different returns and risk
characteristics of various investments, the Fund may show historical returns
of various investments and published indices (E.G., Ibbotson Associates,
Inc. Charts and Morgan Stanley EAFE -- Index).
(g) The major industries located in various jurisdictions as published by the
Morgan Stanley Index.
(h) Rankings by DALBAR Surveys, Inc. with respect to mutual fund shareholder
services.
(i) Allegorical stories illustrating the importance of persistent long-term
investing.
(j) The Fund's portfolio turnover rate and its ranking relative to industry
standards as published by Lipper Analytical Services, Inc. or Morningstar,
Inc.
(k) A description of the Templeton organization's investment management
philosophy and approach, including its worldwide search for undervalued or
"bargain" securities and its diversification by industry, nation and type of
stocks or other securities.
(l) The number of shareholders in the Fund or the aggregate number of
shareholders of the open-end investment companies in the Franklin Templeton
Group of Funds or the dollar amount of fund and private account assets under
management.
(m) Comparison of the characteristics of various emerging markets, including
population, financial and economic conditions.
(n) Quotations from the Templeton organization's founder, Sir John Templeton,*
advocating the virtues of diversification and long-term investing, including
the following:
"Never follow the crowd. Superior performance is possible only if you
invest differently from the crowd."
"Diversify by company, by industry and by country."
"Always maintain a long-term perspective."
"Invest for maximum total real return."
"Invest -- don't trade or speculate."
"Remain flexible and open-minded about types of investment."
"Buy low."
"When buying stocks, search for bargains among quality stocks."
"Buy value, not market trends or the economic outlook."
"Diversify. In stocks and bonds, as in much else, there is safety in
numbers."
"Do your homework or hire wise experts to help you."
"Aggressively monitor your investments."
"Don't panic."
"Learn from your mistakes."
"Outperforming the market is a difficult task."
"An investor who has all the answers doesn't even understand all the
questions."
"There's no free lunch."
"And now the last principle: Do not be fearful or negative too often."
From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the Fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information may also compare the Fund's performance to the
return on CDs or other investments. You should be aware, however, that an
investment in the Fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. For
example, as the general level of interest rates rise, the value of the Fund's
fixed-income investments, if any, as well as the value of its shares that are
based upon the value of such portfolio investments, can be expected to decrease.
Conversely, when interest rates decrease, the value of the Fund's shares can be
expected to increase. CDs are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Fund to calculate its figures. In addition,
there can be no assurance that the Fund will continue its performance as
compared to these other averages.
MISCELLANEOUS INFORMATION
- ------------------------------------------------------------------------------
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Fund cannot guarantee that these goals will be met.
The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 49 years and
now services more than 2.8 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton, a pioneer in international
investing. The Mutual Series team, known for its value-driven approach to
domestic equity investing, became part of the organization four years later.
Together, the Franklin Templeton Group has over $215 billion in assets under
management for more than 5.8 million U.S. based mutual fund shareholder and
other accounts. The Franklin Templeton Group of Funds offers 121 U.S. based
open-end investment companies to the public. The Fund may identify itself by its
NASDAQ symbol or CUSIP number.
From time to time, the number of Fund shares held in the "street name" accounts
of various Securities Dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the Fund, no other person holds beneficially or of record more
than 5% of the outstanding shares of any class.
In the event of disputes involving multiple claims of ownership or authority to
control your account, the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, before executing
instructions regarding the account; (b) interplead disputed funds or accounts
with a court of competent jurisdiction; or (c) surrender ownership of all or a
portion of the account to the IRS in response to a Notice of Levy.
SUMMARY OF CODE OF ETHICS. Employees of the Franklin Templeton Group who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed by the close of the business day following the day clearance is
granted; (ii) copies of all brokerage confirmations must be sent to a compliance
officer and, within 10 days after the end of each calendar quarter, a report of
all securities transactions must be provided to the compliance officer; and
(iii) access persons involved in preparing and making investment decisions must,
in addition to (i) and (ii) above, file annual reports of their securities
holdings each January and inform the compliance officer (or other designated
personnel) if they own a security that is being considered for a fund or other
client transaction or if they are recommending a security in which they have an
ownership interest for purchase or sale by a fund or other client.
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
The audited financial statements contained in the Annual Report to Shareholders
of the Fund, for the fiscal year ended August 31, 1997, including the auditors'
report, are incorporated herein by reference.
USEFUL TERMS AND DEFINITIONS
- ------------------------------------------------------------------------------
1940 ACT - Investment Company Act of 1940, as amended
BOARD - The Board of Directors of the Company
CD - Certificate of deposit
CLASS I, CLASS II AND ADVISOR CLASS - The Fund offers three classes of shares,
designated "Class I," "Class II," and "Advisor Class." The three classes have
proportionate interests in the Fund's portfolio. They differ, however, primarily
in their sales charge and expense structures.
CODE - Internal Revenue Code of 1986, as amended
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds7 and the Templeton Group of Funds
FT SERVICES - Franklin Templeton Services, Inc., the Fund's administrator
GLOBAL ADVISORS - Templeton Global Advisors Limited, the Fund's investment
manager
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
MOODY'S - Moody's Investors Service, Inc.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NYSE - New York Stock Exchange
PROSPECTUS - The prospectus for Advisor Class shares of the Fund dated January
1, 1998, as may be amended from time to time
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
U.S. - United States
WE/OUR/US - Unless a different meaning is indicated by the context, these terms
refer to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
- ------------------------------------------------------------------------------
CORPORATE BOND RATINGS
MOODY'S
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt-
edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present that make the long-term risks appear
somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered medium-grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. These
bonds lack outstanding investment characteristics and, in fact, have speculative
characteristics as well.
BA - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and, thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
CAA - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
CA - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
S&P
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C - Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service payments
are continuing. The C1 rating is reserved for income bonds on which no interest
is being paid.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
PLUS (+) OR MINUS (--): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
COMMERCIAL PAPER RATINGS
MOODY'S
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually their promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following designations, all judged to
be investment grade, to indicate the relative repayment capacity of rated
issuers:
P-1 (PRIME-1): Superior capacity for repayment.
P-2 (PRIME-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
- --------
* Sir John Templeton sold the Templeton organization to Resources in October
1992 and resigned from the Board on April 16, 1995. He is no longer involved
with the investment management process.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements: Incorporated by reference
from the 1997 Annual Reports to Shareholders of Templeton World Fund and
Templeton Foreign Fund:
Independent Auditors' Reports
Investment Portfolios as of August 31, 1997
Statements of Assets and Liabilities as of
August 31, 1997
Statements of Operations for the year ended
August 31, 1997
Statements of Changes in Net Assets for the years
ended August 31,1997 and 1996
Notes to Financial Statements
(b) EXHIBITS
(1)(A) Amended and Restated Articles of
Incorporation dated January 26, 1989 *
(B) Articles Supplementary dated October 24,
1990 *
(C) Articles Supplementary dated October 16,
1993 *
(D) Articles Supplementary dated February 22,
1994 *
(E) Articles Supplementary dated January 6,
1995 *
(F) Articles Supplementary dated April 13, 1995*
(G) Articles of Amendment dated April 17, 1995*
(H) Articles Supplementary dated October 26,
1995 *
(I) Articles Supplementary dated December 27,
1996 *
(2) By-laws (Amended and Restated)*
(3) Not Applicable
(4)(A) Specimen stock certificate for
Templeton World Fund*
(B) Specimen stock certificate for Templeton
Foreign Fund*
(5)(A) Amended and Restated Investment Management
Agreement - Templeton World Fund*
(B) Amended and Restated Investment Management
Agreement - Templeton Foreign Fun *
(6)(A) Distribution Agreement*
(B) Non-Exclusive Underwriting Agreement
(C) Form of Dealer Agreement*
(7) Not Applicable
(8)(A) Custody Agreement dated June 1, 1984 as
amended and restated February 11, 1986 on
behalf of Templeton World Fund with The
Chase Manhattan Bank, N.A. *
(B) Custody Agreement dated June 1, 1984 as
amended and restated February 11, 1986 on
behalf of Templeton Foreign Fund with The
Chase Manhattan Bank, N.A. *
(9)(A) Fund Administration Agreement
(B) Form of Transfer Agent Agreement
(C) Form of Sub-Transfer Agent Services
Agreement *
(D) Form of Sub-Accounting Services Agreement *
(E) Form of Sub-Transfer Agent Agreement between
Fidelity Investments Institutional
Operations Company and Templeton Funds
Trust Company *
(F) Shareholder Services Agreement
(10) Opinion and consent of counsel
(11) Consent of Independent Public Accountants
(12) Not Applicable
(13) Not Applicable
(14) Model Retirement plans *
(15)(A)(1) Distribution Plan - Templeton World Fund
Class I Shares *
(2) Distribution Plan - Templeton World Fund
Class II Shares *
(B)(1) Distribution Plan - Templeton Foreign
Fund Class I Shares *
(2) Distribution Plan - Templeton Foreign
Fund Class II Shares *
(16) Schedule showing computation of performance
quotations provided in response to Item 22 *
(18) Form of Multi-class Plan
(27) Financial Data Schedule
* Previously filed with Registration Statement No. 2-60067 and
incorporated by reference herein.
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF RECORD HOLDERS
Templeton World Fund
Shares of Common Stock, 314,661 Class I Shareholders, 20,681
Class II Shareholders as of November 30, 1997.
Templeton Foreign Fund
Shares of Common Stock, 439,973 Class I Shareholders, 85,268
Class II Shareholders, and 452 Advisor Class Shareholders as
of November 30, 1997.
ITEM 27. INDEMNIFICATION
All officers, directors, employees and agents of the Registrant are to be
indemnified to the fullest extent permitted by law for any liabilities of any
nature whatsoever incurred in connection with the affairs of the Registrant,
except in cases where willful misfeasance, bad faith, gross negligence or
reckless disregard of duties to the Registrant are established. See Articl 5.1
of the By-Laws of the Registrant, filed as Exhibit 2 to the Registration
Statement, which is incorporated herein by reference, for a more complete
description of matters relating to indemnification.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The business and other connections of Registrant's investment
manager, Templeton Global Advisors Limited, are described
in Parts A and B.
For information relating to the investment manager's officers
and directors, reference is made to Form ADV filed under the
Investment Advisers Act of 1940 by Templeton Global Advisors
Limited
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Franklin Templeton Distributors, Inc. also acts as
principal underwriter of shares of:
Franklin Templeton Japan Fund
Templeton American Trust, Inc.
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Variable Products Series Fund
Franklin Asset Allocation Fund
Franklin California Tax Free Income Fund, Inc.
Franklin California Tax Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Floating Rate Trust
Franklin Gold Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Municipal Securities Trust
Franklin Mutual Series Fund, Inc.
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust
Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Fund Allocator Series
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust
(b) The directors and officers of FTD are identified below.
Except as otherwise indicated, the address of each director or officer is 777
Mariners Island Blvd., San Mateo, CA 94404.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
<S> <C> <C>
Charles B. Johnson Chairman of the Board and Director Vice President
and Director
Gregory E. Johnson President None
Rupert H. Johnson, Jr. Executive Vice President Director and Vice President
and Director
Harmon E. Burns Executive Vice President Vice President
and Director
Peter Jones Executive Vice President None
100 Fountain Parkway
St. Petersburg, Fl 33701
Daniel T. O'Lear Executive Vice President None
Edward V. McVey Senior Vice President None
Richard C. Stoker Senior Vice President None
Charles E. Johnson Senior Vice President Vice President
500 East Broward Blvd.
Ft. Lauderdale, FL 33394
<PAGE>
Deborah R. Gatzek Senior Vice President and Asst. Vice President
Secretary
Richard O. Conboy Senior Vice President None
H.G. (Toby) Mumford, Jr. Senior Vice President None
Jimmy A. Escobedo Vice President None
Bert W. Feuss Vice President None
Loretta Fry Vice President None
Robert N. Geppner Vice President None
Mike Hackett Vice President None
Phil J. Kearns Vice President None
Ken Leder Vice President None
Jack Lemein Vice President None
John R. McGee Vice President None
Vivian J. Palmieri Vice President None
Kent P. Strazza Vice President None
Sarah Stypa Vice President None
Laura Komar Vice President None
Alison Hawksley Asst. Vice President None
Francie Arnone Asst. Vice President None
John R. Kay Asst. Vice President Vice President
500 East Broward Blvd.
Ft. Lauderdale, Fl 33394
Virginia Marans Asst. Vice President None
Bernadette Marino Howard Asst. Vice President None
Susan Thompson Asst. Vice President None
Mark rankin Asst. Vice President None
Kenneth A. Lewis Treasurer None
Karen DeBellis Asst. Treasurer Asst. Treasurer
130 Fountain Parkway
St. Petersburg, Fl 33710
Philip A. Scatena Assistant Treasurer None
Leslie M. Kratter Secretary None
</TABLE>
The directors and officers of Templeton/Franklin Investment Services
(Asia) Limited are as follows:
<TABLE>
<CAPTION>
POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
NAME UNDERWRITER WITH REGISTRANT
<S> <C> <C>
Charles E. Johnson Director Vice President
Gregory E. McGowan Director None
Alan Lam Director None
J. Mark Mobius Director None
Murray L. Simpson Director None
Tom Wu Director None
</TABLE>
(c) Not applicable (information on unaffiliated underwriters).
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Certain accounts, books, and other documents required to be
maintained by Registrant pursuant to Section 31 (a) of the
Investment Company Act and rules thereunder are located at
500 East Broward Boulevard, Fort Lauderdale, Florida 33394.
Other records are maintained at the offices of Franklin Templeton
Investor Services, Inc., 100 Fountain Parkway, St. Petersburg,
Florida 33716-1205 and Franklin Resources, Inc., 777 Mariners
Island Blvd., San Mateo, California 94404.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant undertakes to furnish to each person to
whom a Prospectus for Templeton World Fund or
Templeton Foreign Fund is provided a copy of such
Fund's latest Annual Report, upon request and
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, the Registrant, certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Fort Lauderdale, Florida
on the 24th day of December, 1997.
Templeton Funds, Inc.
By:
Mark G. Holowesko*
President
*By:/s/BARBARA J. GREEN
Barbara J. Green
as attorney-in-fact**
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
Mark G. Holowesko* President (Chief Executive December 24, 1997
Officer)
Charles B. Johnson* Chairman, Vice President
and Director December 24, 1997
Betty P. Krahmer* Director December 24, 1997
Fred R. Millsaps* Director December 24, 1997
John Wm. Galbraith* Director December 24, 1997
Rupert H. Johnson, Jr.* Director December 24, 1997
<PAGE>
Harris J. Ashton* Director December 24, 1997
S. Joseph Fortunato* Director December 24, 1997
Andrew H. Hines, Jr.* Director December 24, 1997
Gordon S. Macklin* Director December 24, 1997
Nicholas F. Brady* Director December 24, 1997
James R. Baio* Treasurer December 24, 1997
(Chief Financial
and Accounting Officer)
</TABLE>
*By:/s/BARBARA J. GREEN
Barbara J. Green
as attorney-in-fact**
** Powers of Attorney were previously filed with Post-Effective Amendment
No. 28 to the Registration Statement on Form N-1A of Templeton Funds, Inc.
(File No. 2-60067) file on December 27, 1996.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS FILED WITH
POST-EFFECTIVE AMENDMENT NO. 30 TO
REGISTRATION STATEMENT ON
FORM N-1A
TEMPLETON FUNDS, INC.
<PAGE>
EXHIBIT LIST
EXHIBIT NUMBER NAME OF EXHIBIT
6(b) Non-Exclusive Underwriting Agreement
9(a) Fund Administration Agreement
9(b) Form of Transfer Agent Agreement
9(f) Shareholder Services Agreement
10 Form of Opinion of Counsel
11 Consent of Independent Public Accountants
18 Form of Multiclass Plan
27 Financial Data Schedules
NON-EXCLUSIVE UNDERWRITING AGREEMENT
AGREEMENT made as of the 18th day of September, 1995, between TEMPLETON
FUNDS, INC., a Maryland corporation (herein referred to as the "Company") on
behalf of Templeton World Fund and Templeton Foreign Fund (each a "Fund" and
collectively, the "Funds"), and TEMPLETON FRANKLIN INVESTMENT SERVICES (ASIA)
LIMITED, a corporation organized and existing under the laws of Hong Kong,
office address 2701 Shui On Centre, Hong Kong, (herein referred to as the
"Selling Company").
FIRST: The Selling Company shall be a non-exclusive underwriter of
shares of capital stock of the Fund (the "Shares") in Hong Kong and other parts
of Asia (the "Territory") with the functions hereinafter stated, and agrees to
use its best efforts to bring about and maintain a broad distribution of the
Shares among bona fide investors in the Territory (except United States
citizens) (the "Investors").
SECOND: The Selling Company shall solicit responsible dealers for
orders to purchase the Shares as agent for their clients, and may sign selling
contracts with any such dealer, the forms of such contracts to be as mutually
agreed upon between the Fund and the Selling Company. The Selling Company also
may sell Shares directly to Investors. While this Agreement is in force, the
Fund through its principal underwriter, Franklin Templeton Distributors, Inc.,
may solicit sales or sell the Shares to any person in the Territory, including
Shares sold by dealers who are member firms of the United States National
Association of Securities Dealers, Inc., ("NASD") and may retain the sales
commission on such sales.
THIRD: All of the Shares sold under this Agreement shall be sold only
at the Offering Price in effect at the time of such sale (as described in the
then current prospectus or prospectuses and statements of additional
information, effective under the applicable laws of a country or jurisdiction
within the Territory, and approved by the Fund) and the Fund shall receive not
less than the full net asset value thereof, as defined in the Fund's Articles of
Incorporation ("Charter") or By-Laws. The difference between Offering Price and
net asset value shall be retained by the Selling Company, it being understood
that such amounts will not exceed those that are set forth in the then current
prospectus or prospectuses approved by the Fund (the "Sales Commission"). The
Selling Company agrees to return the Sales Commission to the Fund when an
Investor revokes his/her purchase pursuant to any applicable foreign investment
laws.
FOURTH: The Fund shall pay all costs and expenses incident to
registering and qualifying, and maintaining the registration and qualification
of, the Shares for sale under the laws of the countries within the Territory as
well as, insofar as applicable, the laws of the United States (including the
cost of preparing, setting-up, printing and distributing to the existing
Shareholders residing in each country within the Territory an initial and annual
supply of the respective prospectuses effective under the laws of each such
country, and for preparing, setting-up, printing and distributing an initial and
<PAGE>
annual supply of reports in the appropriate language for existing Shareholders
in the Territory or in the English language where appropriate). The Selling
Company is liable for the cost of printing and delivering copies of prospectuses
and reports for selling purposes to dealers and prospective new Investors in
countries within the Territory. The Selling Company is also liable for the cost
of the preparation, excluding legal fees, and printing of all post-effective
amendments and supplements to the Fund's prospectuses and statement of
additional information if the post-effective amendment or supplement arises from
the Selling Company's (including its parent's) activities or rules and
regulations under 1940 Act related to the Selling Company's activities and those
expenses would not otherwise have been incurred by the Fund. In addition, the
Selling Company is liable for the cost of printing additional copies, for its
use as sales literature, of reports or other communications which the Fund has
prepared for distribution to its existing shareholders.
FIFTH: The Selling Company may re-allow to dealers all or any part of the
discount it is allowed.
SIXTH: The Selling Company shall be entitled to receive a contingent
deferred sales charge or distribution fee from the proceeds of redemption of
Shares of the Fund on such terms and in such amounts as are set forth in the
then current prospectus of the Fund. In addition, the Selling Company may retain
any amounts authorized for payment to the Selling Company under the Fund's
Distribution Plan.
SEVENTH: If Shares are tendered to the Fund for redemption or
repurchase by the Fund within seven business days after the Selling Company's
acceptance of the original purchase order for such Shares, the Selling Company
will immediately refund to the Fund the full sales commission (net of allowances
to dealers or brokers) allowed to the Selling Company on the original sale, and
will promptly, upon receipt thereof, pay to the Fund any refunds from dealers or
brokers of the balance of sales commissions reallowed by the Selling Company.
The Fund shall notify the Selling Company of such tender for redemption within
10 days of the day on which notice of such tender for redemption is received by
the Fund.
EIGHTH: The Selling Company will conduct its business in strict
accordance with the applicable requirements of the Charter and the By-Laws of
the Fund as from time to time amended, and in strict accordance with all
applicable laws, rules and regulations, including the Rules of Fair Practice of
the NASD. The Selling Company shall endeavor to see that dealers buying Shares
resell the same only to bona fide Investors and that the methods and materials
used in selling Shares are sound and conservative, and in accordance with the
Fund's current prospectus.
Advertisements with respect to the Fund prepared by the Selling Company
shall not contain any untrue statements of material fact or omit to state a
material fact required to be stated therein or necessary to make such statements
not misleading and will conform to the U.S. Investment Company Act of 1940, as
<PAGE>
amended, and the regulations thereunder, and to the Rules of Fair Practice of
the NASD pertaining to the content of such material.
No person is authorized to make any representations concerning shares
of the Fund except those contained in the current prospectus, statement of
additional information, and printed information issued by the Fund.
NINTH: The Selling Company shall at all times use reasonable care and
act in good faith in performing its duties hereunder. The Selling Company shall
not be liable or responsible for delays or errors occurring by reason of
circumstances beyond its control, including acts of civil or military authority,
national emergencies, fire, flood or other catastrophes, acts of God,
insurrection, war or riots.
TENTH: This Agreement shall be effective from the date hereof, subject
to registration of the Shares under the laws of the respective countries within
the Territory and other applicable laws as provided in Article FOURTH above. If
the number of Shareholders in any country is not sufficient in the opinion of
the Fund, then such registration may be discontinued, including its obligations
under Article FOURTH above.
ELEVENTH: Either party shall have the right to terminate this Agreement
without the payment of any penalty upon sixty (60) days' notice in writing to
the other, provided, however, that such termination on the part of the Fund
shall be directed or approved either by the affirmative vote of a majority of
the Board of Directors in office at the time or by the affirmative vote of a
majority (as defined in Section 2(a)(42) of the U.S. Investment Company Act of
1940) of the outstanding Shares. This Agreement shall continue in effect from
the date hereof until September 18, 1997, and from year to year thereafter,
provided that such continuance is specifically approved at least annually by the
Board of Directors or by a vote of a majority of the outstanding Shares (as
defined in the U.S. Investment Company Act of 1940) and also, in either event,
approved by a majority of those Directors who are not parties to the Agreement
or interested persons of any such party, in person at a meeting called for the
purpose of voting on such approval.
TWELFTH: The Selling Company agrees at all times to indemnify, save
harmless and defend the Fund from and against all claims for loss, damage or
injury and from and against any suits, actions, or legal proceedings of any kind
brought against the Fund by or on account of any person whosoever arising
directly or indirectly caused by, or incident to, or growing out of this
Agreement for its acts and omissions caused by its willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reckless
disregard of its obligations under this Agreement.
THIRTEENTH: The Selling Company, upon request of the Fund (made at
reasonable times and in a reasonable manner), will provide the Fund with copies
of its books and records relating to the Fund and/or allow inspection of such
books and records by representatives of the Fund.
<PAGE>
The Selling Company shall at all times maintain books and records
relating to the Fund at its principal place of business and will comply
substantially with Section 31 of the U.S. Investment Company Act of 1940, as
amended, and the regulations pursuant to such Section.
FOURTEENTH: This Agreement shall automatically and immediately terminate in the
event of its assignment by the Selling Company. The term "assignment" as used
herein includes any transfer of a controlling block of the voting stock of the
Selling Company.
FIFTEENTH: All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand (and duly receipted) or mailed, certified or registered mail,
return receipt requested, as follows:
if to the Fund Templeton Funds, Inc.
700 Central Avenue
St. Petersburg, Florida 33701-3628
Attention: Thomas M. Mistele,
Secretary
if to the Selling Templeton Franklin Investment
Company Services (Asia) Ltd.
2701 Shui On Centre
Hong Kong
Attention: Murray L. Simpson
Managing Director
or to such other person or address as any party may furnish or designate to the
other in writing in accordance herewith. Notice given by mail shall be deemed to
have been given upon the date shown on the certified or registered postal
receipt showing delivery to the recipient.
SIXTEENTH: The Fund reserves the right at all times to suspend or
limit the public offering of the Shares of the Fund upon two day's written
notice to the Selling Company.
SEVENTEENTH: This Agreement shall be governed by the laws of the State
of California, without reference to principles of conflicts of laws and the U.S.
Securities laws, including the U.S. Investment Company Act of 1940, as amended
from time to time, and the regulations thereunder. Venue for any dispute
hereunder shall be San Mateo, California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers and their respective corporate
seals to be hereunto duly affixed and attested.
<PAGE>
ATTEST: TEMPLETON FUNDS, INC.
/s/THOMAS M. MISTELE By:/s/JOHN R. KAY
Thomas M. Mistele John R. Kay
Secretary Vice President
ATTEST: TEMPLETON FRANKLIN INVESTMENT
SERVICES (ASIA) LIMITED
/s/SUSAN C. PARKS By:/s/MURRAY L. SIMPSON
Susan C. Parks Murray L. Simpson
Managing Director
FUND ADMINISTRATION AGREEMENT BETWEEN
TEMPLETON FUNDS, INC.
AND
FRANKLIN TEMPLETON SERVICES, INC.
AGREEMENT dated as of October 1, 1996, and restated June 1,
1997, between Templeton Funds, Inc. (the "Investment Company"), an investment
company registered under the Investment Company Act of 1940 ("1940 Act"), on
behalf of Templeton World Fund and Templeton Foreign Fund (each a "Fund"),
separate series of the Investment Company, and Franklin Templeton Services, Inc.
("FTS" or "Administrator").
In consideration of the mutual promises herein made, the
parties hereby agree as follows:
(1) The Administrator agrees, during the life of this Agreement, to
provide the following services to each Fund:
(a) providing office space, telephone, office equipment and supplies for
the Fund;
(b) providing trading desk facilities for the Fund, unless these facilities
are provided by the Fund's investment adviser;
(c) authorizing expenditures and approving bills for payment on behalf of
the Fund;
(d) supervising preparation of periodic reports to shareholders, notices of
dividends, capital gains distributions and tax credits; and attending to
routine correspondence and other communications with individual
shareholders when asked to do so by the Fund's shareholder servicing agent
or other agents of the Fund;
(e) coordinating the daily pricing of the Fund's investment portfolio,
including collecting quotations from pricing services engaged by the Fund;
providing fund accounting services, including preparing and supervising
publication of daily net asset value quotations, periodic earnings reports
and other financial data; and coordinating trade settlements;
(f) monitoring relationships with organizations serving the Fund, including
custodians, transfer agents, public accounting firms, law firms, printers
and other third party service providers;
(g) supervising compliance by the Fund with recordkeeping requirements
under the federal securities laws, including the 1940 Act and the rules and
regulations thereunder, and under other applicable state and federal laws;
and maintaining books and records for the Fund (other than those maintained
by the custodian and transfer agent);
(h) preparing and filing of tax reports including the Fund's income tax
returns, and monitoring the Fund's compliance with subchapter M of the
Internal Revenue Code, as amended, and other applicable tax laws and
regulations;
(i) monitoring the Fund's compliance with: 1940 Act and other federal
securities laws, and rules and regulations thereunder; state and foreign
laws and regulations applicable to the operation of investment companies;
the Fund's investment objectives, policies and restrictions; and the Code
of Ethics and other policies adopted by the Investment Company's Board of
Directors ("Board") or by the Fund's investment adviser and applicable to
the Fund;
(j) providing executive, clerical and secretarial personnel needed to carry
out the above responsibilities;
(k) preparing and filing regulatory reports, including without limitation
Forms N-1A and N-SAR, proxy statements, information statements and U.S. and
foreign ownership reports; and
(l) providing support services incidental to carrying out these duties.
Nothing in this Agreement shall obligate the Investment Company or any Fund to
pay any compensation to the officers of the Investment Company. Nothing in this
Agreement shall obligate FTS to pay for the services of third parties, including
attorneys, auditors, printers, pricing services or others, engaged directly by
the Fund to perform services on behalf of the Fund.
(2) The Investment Company agrees, during the life of this Agreement,
to pay to FTS as compensation for the foregoing a monthly fee equal on an annual
basis to 0.15% of the first $200 million of the combined average daily net
assets of the Funds during the month preceding each payment, reduced as follows:
on such net assets in excess of $200 million up to $700 million, a monthly fee
equal on an annual basis to 0.135%; on such net assets in excess of $700 million
up to $1.2 billion, a monthly fee equal on an annual basis to 0.10%; and on such
net assets in excess of $1.2 billion, a monthly fee equal on an annual basis to
0.075%.
From time to time, FTS may waive all or a portion of its fees provided for
hereunder and such waiver shall be treated as a reduction in the purchase price
of its services. FTS shall be contractually bound hereunder by the terms of any
publicly announced waiver of its fee, or any limitation of each affected Fund's
expenses, as if such waiver or limitation were fully set forth herein.
(3) This Agreement shall remain in full force and effect through for
one year after its execution and thereafter from year to year to the extent
continuance is approved annually by the Board of the Investment Company.
(4) This Agreement may be terminated by the Investment Company at any
time on sixty (60) days' written notice without payment of penalty, provided
that such termination by the Investment Company shall be directed or approved by
the vote of a majority of the Board of the Investment Company in office at the
time or by the vote of a majority of the outstanding voting securities of the
Investment Company (as defined by the 1940 Act); and shall automatically and
immediately terminate in the event of its assignment (as defined by the 1940
Act).
(5) In the absence of willful misfeasance, bad faith or gross
negligence on the part of FTS, or of reckless disregard of its duties and
obligations hereunder, FTS shall not be subject to liability for any act or
omission in the course of, or connected with, rendering services hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers.
FRANKLIN TEMPLETON SERVICES, INC.
By:/s/MARTIN L. FLANAGAN
Martin L. Flanagan
President
TEMPLETON FUNDS, INC.
By:/s/JOHN R. KAY
John R. Kay
Vice President
TRANSFER AGENT AGREEMENT BETWEEN
TEMPLETON FUNDS, INC. AND
FRANKLIN TEMPLETON INVESTOR SERVICES, INC.
AGREEMENT dated as of September 1, 1993, and amended and restated as of
August 10, 1995 and July 1, 1996, between TEMPLETON FUNDS, INC., a registered
open-end investment company with offices at 700 Central Avenue, St. Petersburg,
Florida 33701 (the "Company") on behalf of Templeton World Fund and Templeton
Foreign Fund (collectively, the "Funds") and FRANKLIN TEMPLETON INVESTOR
SERVICES, INC., a registered transfer agent with offices at 700 Central Avenue,
St. Petersburg, Florida 33701 ("FTIS").
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set
forth, the Company and FTIS agree as follows:
1. DEFINITIONS. Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the following
meanings:
(a) "Articles of Incorporation" shall mean the Articles of Incorporation of the
Company as the same may be amended from time to time;
(b) "Authorized Person" shall be deemed to include any person,
whether or not such person is an officer or employee of the Company, duly
authorized to give Oral Instructions or Written Instructions on behalf of the
Company as indicated in a certificate furnished to FTIS pursuant to Section 4(c)
hereof as may be received by FTIS from time to time;
(c) "Custodian" refers to the custodian and any sub-custodian
of all securities and other property which the Company may from time to time
deposit, or cause to be deposited or held under the name or account of such
custodian pursuant to the Custody Agreement;
(d) "Oral Instructions" shall mean instructions, other than
written instructions, actually received by FTIS from a person reasonably
believed by FTIS to be an Authorized Person;
(e) "Shares" refers to shares of common stock, par value $1.00 per share, of the
Company; and
(f) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by FTIS to be an Authorized Person and
actually received by FTIS.
<PAGE>
2. APPOINTMENT OF FTIS. The Company hereby appoints and constitutes
FTIS as transfer agent for Shares of the Company and as shareholder servicing
agent for the Company, and FTIS accepts such appointment and agrees to perform
the duties hereinafter set forth.
3. COMPENSATION.
(a) The Company will compensate or cause FTIS to be
compensated for the performance of its obligations hereunder in accordance with
the fees set forth in the written schedule of fees annexed hereto as Schedule A
and incorporated herein. Schedule A does not include out-of-pocket disbursements
of FTIS for which FTIS shall be entitled to bill the Company separately. FTIS
will bill the Company as soon as practicable after the end of each calendar
month, and said billings will be detailed in accordance with Schedule A. The
Company will promptly pay to FTIS the amount of such billing.
Out-of-pocket disbursements shall include, but shall not be
limited to, the items specified in the written schedule of out-of-pocket
expenses annexed hereto as Schedule B and incorporated herein. Schedule B may be
modified by FTIS upon not less than 30 days' prior written notice to the
Company. Unspecified out-of-pocket expenses shall be limited to those
out-of-pocket expenses reasonably incurred by FTIS in the performance of its
obligations hereunder. Reimbursement by the Company for expenses incurred by
FTIS in any month shall be made as soon as practicable after the receipt of an
itemized bill from FTIS.
Out-of-Pocket disbursements may also include payments made by
FTIS to entities including affiliated entities which provide sub-shareholder
services, recordkeeping and/or transfer agency services to beneficial owners of
the Funds, where such services are substantially similar to the services
provided by FTIS to account holders of record. The amount of these disbursements
per benefit plan participant fund account per year shall not exceed the per
account transfer agency fees payable by the Company to FTIS in connection with
maintaining actual shareholder accounts. On an annual basis, FTIS shall provide
a report to the Board showing, with respect to each entity receiving such fees,
the number of beneficial owners serviced by such entity and the value of the
assets in the Funds represented by such accounts.
(b) Any compensation agreed to hereunder may be adjusted from
time to time by attaching to Schedule A of this Agreement a revised Fee
Schedule.
4. DOCUMENTS. In connection with the appointment of FTIS, the Company
shall, on or before the date this Agreement goes into effect, but in any case,
within a reasonable period of time for FTIS to prepare to perform its duties
hereunder, deliver or cause to be delivered to FTIS the following documents:
(a) If applicable, specimens of the certificates for the Shares;
<PAGE>
(b) All account application forms and other documents relating to Shareholder
accounts or to any plan, program or service offered by the Company;
(c) A certificate identifying the Authorized Persons and specimen signatures of
Authorized Persons who will sign Written Instructions; and
(d) All documents and papers necessary under the laws of
Florida, under the Company's Articles of Incorporation, and as may be required
for the due performance of FTIS's duties under this Agreement or for the due
performance of additional duties as may from time to time be agreed upon between
the Company and FTIS.
5. DISTRIBUTIONS PAYABLE IN SHARES. In the event that the Board of
Directors of the Company shall declare a distribution payable in Shares of
either Fund, the Company shall deliver or cause to be delivered to FTIS written
notice of such declaration signed on behalf of the Company by an officer
thereof, upon which FTIS shall be entitled to rely for all purposes, certifying
(i) the number of Shares of each Fund involved, and (ii) that all appropriate
action has been taken.
6. DUTIES OF THE TRANSFER AGENT. FTIS shall be responsible for
administering and/or performing transfer agent functions; for acting as service
agent in connection with dividend and distribution functions; and for performing
shareholder account and administrative agent functions in connection with the
issuance, transfer and redemption or repurchase (including coordination with the
Custodian) of Shares. The operating standards and procedures to be followed
shall be determined from time to time by agreement between the Company and FTIS.
Without limiting the generality of the foregoing, FTIS agrees to perform the
specific duties listed on Schedule C.
7. RECORDKEEPING AND OTHER INFORMATION. FTIS shall create and maintain all
necessary records in accordance with all applicable laws, rules and regulations.
8. OTHER DUTIES. In addition, FTIS shall perform such other duties and
functions, and shall be paid such amounts therefor, as may from time to time be
agreed upon in writing between the Company and FTIS. Such other duties and
functions shall be reflected in a written amendment to Schedule C, and the
compensation for such other duties and functions shall be reflected in a written
amendment to Schedule A.
9. RELIANCE BY TRANSFER AGENT; INSTRUCTIONS.
(a) FTIS will be protected in acting upon Written or Oral
Instructions reasonably believed to have been executed or orally communicated by
an Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from an
officer of the Company. FTIS will also be protected in processing Share
certificates which it reasonably believes to bear the proper manual or facsimile
signatures of the officers of the Company and the proper countersignature of
FTIS.
<PAGE>
(b) At any time FTIS may apply to any Authorized Person of the
Company for Written Instructions and may seek advice at the Company's expense
from legal counsel for the Company or from its own legal counsel, with respect
to any matter arising in connection with this Agreement, and it shall not be
liable for any action taken or not taken or suffered by it in good faith in
accordance with such Written Instructions or in accordance with the opinion of
counsel for the Company or for FTIS. Written Instructions requested by FTIS will
be provided by the Company within a reasonable period of time. In addition,
FTIS, or its officers, agents or employees, shall accept Oral Instructions or
Written Instructions given to them by any person representing or acting on
behalf of the Company only if said representative is known by FTIS, or its
officers, agents or employees, to be an Authorized Person.
10. ACTS OF GOD, ETC. FTIS will not be liable or responsible for delays
or errors by reason of circumstances beyond its control, including acts of civil
or military authority, national emergencies, labor difficulties, fire,
mechanical breakdown beyond its control, flood or catastrophe, acts of God,
insurrection, war, riots or failure beyond its control of transportation,
communication or power supply.
11. DUTY OF CARE AND INDEMNIFICATION. The Company will indemnify FTIS
against and hold it harmless from any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses)
resulting from any claim, demand, action or suit not resulting from willful
misfeasance, bad faith or gross negligence on the part of FTIS, and arising out
of, or in connection with, its duties hereunder. In addition, the Company will
indemnify FTIS against and hold it harmless from any and all losses, claims,
damages, liabilities or expenses (including reasonable counsel fees and
expenses) resulting from any claim, demand, action or suit as a result of: (i)
any action taken in accordance with Written or Oral Instructions, or any other
instructions or Share certificates reasonably believed by FTIS to be genuine and
to be signed, countersigned or executed, or orally communicated by an Authorized
Person; (ii) any action taken in accordance with written or oral advice
reasonably believed by FTIS to have been given by counsel for the Company or by
its own counsel; (iii) any action taken as a result of any error or omission in
any record (including but not limited to magnetic tapes, computer printouts,
hard copies and microfilm copies) delivered, or caused to be delivered by the
Company to FTIS in connection with this Agreement; or (iv) any action taken in
accordance with oral instructions given under the Telephone Exchange and
Redemption Privileges, as described in the applicable Fund's current prospectus,
when believed by FTIS to be genuine.
In any case in which the Company may be asked to indemnify or hold FTIS
harmless, the Company shall be advised of all pertinent facts concerning the
situation in question and FTIS will use reasonable care to identify and notify
the Company promptly concerning any situation which presents or appears likely
to present a claim for indemnification against the Company. The Company shall
have the option to defend FTIS against any claim which may be the subject of
this indemnification, and, in the event that the Company so elects, such defense
shall be conducted by counsel chosen by the Company and satisfactory to FTIS,
and thereupon the Company shall take over complete defense of the claim and FTIS
shall sustain no further legal or other expenses in such situation for which it
seeks indemnification under this Section 11. FTIS will not confess any claim or
make any compromise in any case in which the Company will be asked to provide
indemnification, except with the Company's prior written consent. The
obligations of the parties hereto under this Section shall survive the
termination of this Agreement.
<PAGE>
12. TERM AND TERMINATION.
(a) This Agreement shall be effective as of the date first
written above and shall continue through December 31, 1993 and thereafter shall
continue automatically for successive annual periods ending on December 31 of
each year, provided such continuance is specifically approved at least annually
by (i) the Company's Board of Directors or (ii) a vote of a "majority" (as
defined in the Investment Company Act of 1940 (the "1940 Act")) of the Company's
outstanding voting securities taken in accordance with applicable provisions of
the 1940 Act, provided that in either event the continuance is also approved by
a majority of the Board of Directors who are not "interested persons" (as
defined in the 1940 Act) of any party to this Agreement, by vote cast in person
at a meeting called for the purpose of voting such approval;
(b) Either party hereto may terminate this Agreement by giving
to the other party a notice in writing specifying the date of such termination,
which shall be not less than 60 days after the date of receipt of such notice.
In the event such notice is given by the Company, it shall be accompanied by a
resolution of the Board of Directors of the Company, certified by the Secretary
of the Company, designating a successor transfer agent or transfer agents. Upon
such termination and at the expense of the Company, FTIS will deliver to such
successor a certified list of shareholders of the Company (with names and
addresses), an historical record of the account of each Shareholder and the
status thereof, and all other relevant books, records, correspondence, and other
data established or maintained by FTIS under this Agreement in a form reasonably
acceptable to the Company, and will cooperate in the transfer of such duties and
responsibilities, including provisions for assistance from FTIS's personnel in
the establishment of books, records and other data by such successor or
successors.
13. AMENDMENT. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties.
14. SUBCONTRACTING. The Company agrees that FTIS may, in its discretion,
subcontract for certain of the services described under this Agreement or the
Schedules hereto; provided that the appointment of any such agent shall not
relieve FTIS of its responsibilities hereunder.
<PAGE>
15. MISCELLANEOUS.
(a) Any notice or other instrument authorized or required by
this Agreement to be given in writing to the Company or FTIS shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To the Company:
Templeton Funds, Inc.
700 Central Avenue
St. Petersburg, Florida 33701
To FTIS:
Franklin Templeton Investor Services, Inc.
700 Central Avenue
St. Petersburg, Florida 33701
(b) This Agreement shall extend to and shall be binding upon
the parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable without the written consent
of the other party.
(c) This Agreement shall be construed in accordance with the laws of the State
of California.
(d) This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original; but such
counterparts shall, together, constitute only one instrument.
(e) The captions of this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officers thereunder duly authorized as of
the day and year first above written.
TEMPLETON FUNDS, INC.
BY:/s/JOHN R. KAY
John R. Kay
Vice President
FRANKLIN TEMPLETON INVESTOR SERVICES, INC.
BY:/s/MARTIN L. FLANAGAN
Martin L. Flanagan
Senior Vice President
<PAGE>
A-1
Schedule A
FEES
Shareholder account maintenance (per $14.54, adjusted as of
annum, prorated payable monthly) February 1 of each year to
reflect changes in the Department
of Labor Consumer Price Index.
Cash Withdrawal Program No charge to the Fund.
Retirement Plans No charge to the Fund.
Wire orders or express mailings of $15.00 fee may be charged for
redemption proceeds each wire order and each express
mailing.
February 1, 1997
<PAGE>
B-1
Schedule B
OUT-OF-POCKET EXPENSES
The Company shall reimburse FTIS monthly for the following
out-of-pocket expenses:
o postage and mailing
o forms
o outgoing wire charges
o telephone
o Federal Reserve charges for check clearance
o if applicable, magnetic tape and freight
o retention of records
o microfilm/microfiche
o stationary
o insurance
o if applicable, terminals, transmitting lines and any expenses
incurred in connection with such terminals and lines
o all other miscellaneous expenses reasonably incurred by FTIS
The Company agrees that postage and mailing expenses will be paid on
the day of or prior to mailing as agreed with FTIS. In addition, the Company
will promptly reimburse FTIS for any other expenses incurred by FTIS as to which
the Company and FTIS mutually agree that such expenses are not otherwise
properly borne by FTIS as part of its duties and obligations under the
Agreement.
<PAGE>
C-4
C-1
Schedule C
DUTIES
AS TRANSFER AGENT FOR INVESTORS IN THE COMPANY, FTIS WILL:
o Record in its transfer record, countersign as transfer agent,
and deliver certificates signed manually or by facsimile, by
the President or a Vice-President and by the Secretary or the
Assistant Secretary of the Company, in such names and for such
number of authorized but hitherto unissued Shares of the
Company as to which FTIS shall receive instructions; and
o Transfer on its records from time to time, when presented to
it for that purpose, certificates of said Shares, whether now
outstanding or hereafter issued, when countersigned by a duly
authorized transfer agent, and upon the cancellation of the
old certificates, record and countersign new certificates for
a corresponding aggregate number of Shares and deliver said
new certificates.
AS SHAREHOLDER SERVICE AGENT FOR INVESTORS IN THE COMPANY, FTIS WILL:
o Receive from the Company, from the Company's Principal
Underwriter or from a Shareholder, on a form acceptable to
FTIS, information necessary to record sales and redemptions
and to generate sale and/or redemption confirmations;
o Mail sale and/or redemption confirmations using standard
forms;
o Accept and process cash payments from investors, clear checks
which represent payments for the purchase of Shares;
o Requisition Shares in accordance with instructions of the
Principal Underwriter of the Shares of the Company;
o Produce periodic reports reflecting the accounts receivable
and the paid pending (free stock) items;
o Open, maintain and close Shareholder accounts;
o Establish registration of ownership of Shares in accordance
with generally accepted form;
<PAGE>
o Maintain monthly records of (i) issued Shares and (ii) number
of Shareholders and their aggregate Shareholdings classified
according to their residence in each State of the United
States or foreign country;
o Accept and process telephone exchanges an redemptions for
Shares in accordance with a Fund's Telephone Exchange and
Redemption Privileges as described in the Fund's current
prospectus.
o Maintain and safeguard records for each Shareholder showing
name(s), address, number of any certificates issued, and
number of Shares registered in such name(s), together with
continuous proof of the outstanding Shares, and dealer
identification, and reflecting all current changes. On
request, provide information as to an investor's qualification
for Cumulative Quantity Discount. Provide all accounts with
confirmation statements reflecting the most recent
transaction, and also provide year-end historical confirmation
statements;
o Provide on request a duplicate set of records for file
maintenance in the Company's office in St. Petersburg,
Florida;
o Out of money received in payment for Share sales, pay to the
Company's Custodian Account with the Custodian, the net asset
value per Share and pay to the Principal Underwriter its
commission;
o Redeem Shares and prepare and mail (or wire) liquidation
proceeds;
o Pass upon the adequacy of documents submitted by a
Shareholder or his legal representative to substantiate the
transfer of ownership of Shares from the registered owner
to transferees;
o From time to time, make transfers upon the books of the
Company in accordance with properly executed transfer
instructions furnished to FTIS and make transfers of
certificates for such Shares as may be surrendered for
transfer properly endorsed, and countersign new certificates
issued in lieu thereof;
o Upon receipt of proper documentation, place stop transfers,
obtain necessary insurance forms, and reissue replacement
certificates against lost, stolen or destroyed Share
certificates;
o Check surrendered certificates for stop transfer restrictions.
Although FTIS cannot insure the genuineness of certificates
surrendered for cancellation, it will employ all due
reasonable care in deciding the genuineness of such
certificates and the guarantor of the signature(s) thereon;
<PAGE>
o Cancel surrendered certificates and record and countersign
new certificates;
o Certify outstanding Shares to auditors;
o In connection with any meeting of Shareholders, upon receiving
appropriate detailed instructions and written materials
prepared by the Company and proxy proofs checked by the
Company, print proxy cards; deliver to Shareholders all
reports, prospectuses, proxy cards and related proxy materials
of suitable design for enclosing; receive and tabulate
executed proxies; and furnish a list of Shareholders for the
meeting;
o Answer routine correspondence and telephone inquiries about
individual accounts. Prepare monthly reports for
correspondence volume and correspondence data necessary for
the Company's Semi-Annual Report on Form N-SAR;
o Prepare and mail dealer commission statements and checks;
o Maintain and furnish the Company and its Shareholders with
such information as the Company may reasonably request for the
purpose of compliance by the Company with the applicable tax
and securities laws of applicable jurisdictions;
o Mail confirmations of transactions to investors and dealers
in a timely fashion;
o Pay or reinvest income dividends and/or capital gains
distributions to Shareholders of record,in accordance with
the Company's and/or Shareholder's instructions, provided
that:
(a) The Company shall notify FTIS in writing
promptly upon declaration of any such
dividend and/or distribution, and in any
event at least forty-eight (48) hours before
the record date;
(b) Such notification shall include the
declaration date, the record date, the
payable date, the rate, and, if applicable,
the reinvestment date and the reinvestment
price to be used; and
(c) Prior to the payable date, the Company shall
furnish FTIS with sufficient fully and
finally collected funds to make such
distribution;
<PAGE>
o Prepare and file annual United States information returns of
dividends and capital gains distributions (Form 1099) and mail
payee copies to Shareholders; report and pay United States
income taxes withheld from distributions made to nonresidents
of the United States, and prepare and mail to Shareholders the
notice required by the U.S. Internal Revenue Code as to
realized capital gains distributed and/or retained, and their
proportionate share of any foreign taxes paid by the Company;
o Prepare transfer journals;
o Set up wire order trades on file;
o Receive payment for trades and update the trade file;
o Produce delinquency and other trade file reports;
o Provide dealer commission statements and payments thereof for
the Principal Underwriter;
o Sort and print shareholder information by state, social code,
price break, etc.; and
o Mail promptly the Statement of Additional Information of the
Company to each Shareholder who requests it, at no cost to
the Shareholder.
In connection with the Company's Cash Withdrawal Program, FTIS will:
o Make payment of amounts withdrawn periodically by the
Shareholder pursuant to the Program by redeeming Shares, and
confirm such redemptions to the Shareholder; and
o Provide confirmations of all redemptions, reinvestmentof
dividends and distributions, and any additional investments in
the Program, including a summary confirmation at the year-end.
In connection with Tax Deferred Retirement Plans involving the Company,
FTIS will:
o Receive and process applications, accept contributions,
record Shares issued and dividends reinvested;
o Make distributions when properly requested; and
o Furnish reports to regulatory authorities as required.
SHAREHOLDER SERVICES AGREEMENT
THIS AGREEMENT IS MADE AS OF THE 18TH DAY OF SEPTEMBER, 1995
BETWEEN
FRANKLIN TEMPLETON INVESTOR SERVICES, INC., a California corporation with
offices located at 700 Central Avenue, St. Petersburg, Florida 33701-8030
(hereinafter called "the Transfer Agent");
AND
TEMPLETON FRANKLIN INVESTMENT SERVICES (ASIA) LIMITED, incorporated under the
laws of Hong Kong with its registered office at 2701 Shui On Centre, Hong Kong
(hereinafter called "the Agent").
WHEREAS
(A) the Transfer Agent provides shareholder services ("the Services") for
Templeton Growth Fund, Inc. and Templeton Funds, Inc., (on behalf of
Templeton World Fund and Templeton Foreign Fund), which are
incorporated under the laws of Maryland and registered under US
Investment Company Act of 1940 as open-end, diversified management
investment companies ("the Funds") and in respect of the shares of the
Funds ("the Shares");
(B) the Services are provided in accordance with the terms and conditions
contained in the current Prospectuses of the Funds as such may be
supplemented or amended; and
(C) the Agent has agreed to undertake part of the Services on behalf of the
Transfer Agent with respect to investors located in Asia (hereinafter
called "Asian Shareholders") on the following terms and conditions.
NOW, THEREFORE, IT IS HEREBY AGREED as follows:
1. APPOINTMENT
The Transfer Agent hereby appoints the Agent as a non-exclusive
shareholder services agent with respect to Asian Shareholders.
2. MANDATE
The Agent shall undertake part of the Services, namely
(a) to deal with requests for the purchase, transfer, exchange or
redemption of Shares by Asian Shareholders;
(b) to accept and forward to the Transfer Agent Share certificates tendered
for exchange, replacement, repurchase or transfer by the Asian
Shareholders; to accept and forward to the Transfer Agent such forms
and documents as may be submitted to it in connection with any such
tender;
(c) to assist in the processing of subscriptions for Shares and to assist
in dealing with requests for repurchases of Shares;
(d) to provide and supervise services with regard to the dispatch of
statements, reports, notices, announcements and other documents to
shareholders of the Funds and to maintain such records with regard
thereto as may be required from time to time by the Funds;
(e) to respond to relevant inquiries concerning the Funds; and
(f) to perform such other services as may be agreed upon from time to time
among the parties.
3 LIMITATION OF AUTHORITY
No person is authorized to make any representations concerning the
Funds or the Shares except those contained in the curren Prospectuses
of the Funds and in such printed information as may subsequently be
prepared or approved in writing on behalf of the Funds. No persons is
authorized to distribute any sales material on behalf of the Funds. The
Agent shall indemnify and hold the Transfer Agent harmless from and
against any and all damages, claims,loss, liability or expense to the
Transfer Agent or the Funds arising out of or related to the part of
the Services undertaken by the Agent. The Transfer Agent shall
indemnify and hold the Agent harmless from and against any and all
damages, claims, loss, liability or expense arising out of or related
to the Services other than the part undertaken by the Agent.
4. COMPENSATION
As compensation for the part of the Services undertaken by the Agent it
shall receive a shareholder services fees as specified in Appendix 1 to
the Agreement.
5. QUALIFICATION TO ACT
The Agent agrees that it will not act as shareholder services agent for
any persons to whom the Funds may not lawfully offer Shares.
6. RECORD KEEPING
In respect of the Services undertaken by the Agent, it shall maintain
all records required by law and upon request promptly make these
records available to the Transfer Agent or the Funds.
7. APPLICABLE LAWS
The Agent agrees to comply with all applicable United States Federal
and State laws and rules, as well as the rules and regulations of any
and all governments or authorized agencies having jurisdiction over the
Agent.
8. TERMINATION OF THE AGREEMENT
Any party shall have the right to terminate this Agreement without the
payment of any penalty upon 60 days notice in writing to the other
parties.
9. JURISDICTION AND VENUE
This Agreement shall be governed by the laws of California. Venue for
any dispute hereunder shall be San Mateo, California.
10. INTEGRATION
This Agreement embodies the entire understanding between the parties
relating to the subject matter hereof and supersedes all prior
agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof.
11. ADDRESSES OF THE PARTIES
All notices, requests, demands and other communication hereunder shall
be in writing and shall be deemed to have been duly given if delivered
by hand (and duly receipted) or mailed, certified or registered mail,
return receipt requested, as follows:
If to the Transfer Agent:
FRANKLIN TEMPLETON INVESTOR SERVICES, INC.
700 Central Avenue
St. Petersburg, Florida 33701-8030
If to the Agent:
TEMPLETON FRANKLIN INVESTMENT
SERVICES (ASIA) LIMITED
2701 Shui On Centre
Hong Kong
or to such other person or address as any party may furnish or
designate to the other in writing in accordance hereto. Notice given
by mail shall be deemed to have been given upon the date shown on the
certified or registered postal receipt showing delivery to the
recipient.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their duly authorized officers on the date first above written.
FRANKLIN TEMPLETON INVESTOR SERVICES, INC.
BY:/s/THOMAS M. MISTELE
Thomas M. Mistele
TEMPLETON FRANKLIN INVESTMENT SERVICES (ASIA) LIMITED
By:/s/MURRAY L. SIMPSON
Murray L. Simpson
<PAGE>
APPENDIX 1
SHAREHOLDER SERVICES FEE
In respect of the Services, the Transfer Agent shall pay the Agent an annual fee
calculated US $12.00 per Shareholder account. Such fees shall be paid to the
Agent quarterly in arrears.
LAW OFFICES OF
DECHERT PRICE & RHOADS
1500 K STREET, N.W.
WASHINGTON, DC 20005-1208
TELEPHONE: (202)626-3300
FAX: (202) 626-3334
December 18, 1997
Templeton Funds, Inc.
500 E. Broward Boulevard
Suite 2100
Ft. Lauderdale, Florida 33394
Dear Sirs:
As counsel for Templeton Funds, Inc. (the "Fund"), a Maryland corporation,
we are familiar with the Fund's registration under the Investment Company Act
of 1940 and with the registration statement relating to its shares of Common
Shares (the "Shares") under the Securities Act of 1933 (File No. 2-60067)
(the "Registration Statement"). We also have examined such other corporate
records, agreements, documents and instruments as we deemed appropriate.
Based upon the foregoing, it is our opinion that the Shares registered pursuant
to the Fund's Registration Statement will, when sold at the public offering
price and delivered by the Fund against receipt of the net asset value of the
Shares in accordance with the terms of the Registration Statement and the
requirements of applicable law, have been duly and validly authorized, legally
and validly issued, and fully paid and non-assessable.
We consent to the filing of this opinion in connection with Post-Effective
Amendment No. 30 which is filed under the Securities Act of 1933 on behalf
of the Fund with the Securities and Exchange Commission.
Very truly yours,
/s/DECHERT PRICE & RHOADS
McGLADREY & PULLEN, LLP
Certified Public Accountants and Consultants
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated September 26, 1997, on the
financial statements of Templeton World and Templeton Foreign Fund, a series of
Templeton Funds, Inc., referred to therein, which appears in the 1997 Annual
Reports to Shareholders and which are incorporated herein by reference, in
Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A, File
No. 2-60067, as filed with the Securities and Exchange Commission.
We also consent to the reference to our firm in the Prospectus under the caption
"Financial Highlights" and in the Statement of Additional Information under the
caption "Auditors."
/s/MCGLADREY & PULLEN, LLP
McGladrey & Pullen, LLP
New York, New York
December 17, 1997
TEMPLETON FUNDS, INC.
TEMPLETON FOREIGN FUND
MULTIPLE CLASS PLAN
This Multiple Class Plan (the "Plan") has been adopted by a
majority of the Board of Directors of Templeton Funds, Inc., (the "Company") on
behalf of Templeton Foreign Fund (the "Fund"). The Board has determined that the
Plan is in the best interests of each class of the Fund as a whole. The Plan
sets forth the provisions relating to the establishment of multiple classes of
shares of the Fund.
1. The Fund shall offer three classes of shares, to be known as Templeton Funds,
Inc. - Templeton Foreign Fund Class I shares ("Class I Shares"), Templeton
Funds, Inc. - Templeton Foreign Fund Class II shares ("Class II Shares") and
Templeton Funds, Inc. - Templeton Foreign Fund Advisor Class shares ("Advisor
Class Shares").
2. Class I Shares shall carry a front-end sales charge ranging
from 0% - 5.75%, and Class II Shares shall carry a front-end sales charge of
1.00%. Advisor Class Shares shall not be subject to any front-end sales charges.
3. Class I Shares shall not be subject to a contingent
deferred sales charge ("CDSC") except in the following limited circumstances. On
investments of $1 million or more, a contingent deferred sales charge of 1.00%
of the lesser of the then-current net asset value or the original net asset
value at the time of purchase applies to redemptions of those investments within
the contingency period of 12 months from the calendar month following their
purchase. The CDSC is waived in certain circumstances, as described in the
Fund's prospectus.
Class II Shares redeemed within 18 months of their purchase
shall be assessed a CDSC of 1.00% on the lesser of the then-current net asset
value or the original net asset value at the time of purchase. The CDSC is
waived in certain circumstances as described in the Fund's prospectus.
Advisor Class Shares shall not be subject to any CDSC.
4. The distribution plan adopted by the Fund pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended, (the "Rule 12b-1
Plan") associated with the Class I Shares may be used to reimburse Franklin
Templeton Distributors, Inc. (the "Distributor") or others for expenses incurred
in the promotion and distribution of the Class I Shares. Such expenses include,
but are not limited to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature and related
expenses, advertisements, and other distribution-related expenses, including a
prorated portion of the Distributor's overhead expenses attributable to the
distribution of the Class I Shares, as well as any distribution or service fees
paid to securities dealers or their firms or others who have executed a
servicing agreement with the Fund for the Class I Shares, the Distributor or its
affiliates.
The Rule 12b-1 Plan associated with the Class II Shares has
two components. The first component is a shareholder servicing fee, to be paid
to broker-dealers, banks, Fund companies and others who provide personal
assistance to shareholders in servicing their accounts. The second component is
an asset-based sales charge to be retained by the Distributor during the first
year after the sale of shares, and, in subsequent years, to be paid to dealers
or retained by the Distributor to be used in the promotion and distribution of
Class II Shares, in a manner similar to that described above for Class I Shares.
No Rule 12b-1 Plan has been adopted on behalf of the Advisor
Class Shares, and therefore, the Advisor Class Shares shall not be subject to
deductions relating to Rule 12b-1 fees.
The Rule 12b-1 Plans for the Class I and Class II Shares shall
operate in accordance with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., Article III, section 26(d).
5. The only difference in expenses as between Class I, Class
II and Advisor Class Shares shall relate to differences in the Rule 12b-1 plan
expenses of each class, as described in any class' applicable Rule 12b-1 Plan.
6. There shall be no conversion features associated with the
Class I, Class II and Advisor Class Shares.
7. Class I Shares of the Fund may only be exchanged for Class
I Shares of any other fund or series in the Franklin Templeton Group and may not
be exchanged into the Franklin Templeton Money Fund II of the Franklin Templeton
Money Fund. Class II Shares of the Fund may only be exchanged for Class II
Shares of any other fund or series in the Franklin Templeton Group and may also
be exchanged into the Franklin Templeton Money Fund II of the Franklin Templeton
Money Fund Trust. Advisor Class Shares of the Fund may only be exchanged for
Advisor Class shares of any other fund or series in the Franklin Templeton
Group, Class I shares of any other fund or series in the Franklin Templeton
Group that does not offer Advisor Class shares, and Class Z shares of Franklin
Mutual Series Fund, Inc.
8. Each class will vote separately with respect to any Rule
12b-1 Plan related to that class.
9. On an ongoing basis, the Directors, pursuant to their
fiduciary responsibilities under the 1940 Act and otherwise, will monitor the
Fund for the existence of any material conflicts between the interests of the
various classes of shares. The Directors, including a majority of the
independent Directors, shall take such action as is reasonably necessary to
eliminate any such conflict that may develop. The Fund's Investment Manager and
Franklin Templeton Distributors, Inc. shall be responsible for alerting the
Board to any material conflicts that arise.
10. All material amendments to this Plan must be approved by a
majority of the Directors of the Fund, including a majority of the Directors who
are not interested persons of the Fund.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TEMPLETON WORLD FUND AUGUST 31, 1997 ANNUAL REPORT AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000225930
<NAME> TEMPLETON FUNDS INC.
<SERIES>
<NUMBER> 001
<NAME> TEMPLETON WORLD FUND - CLASS I
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 6821305129
<INVESTMENTS-AT-VALUE> 8847111702
<RECEIVABLES> 62710272
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 11975221
<TOTAL-ASSETS> 8921797195
<PAYABLE-FOR-SECURITIES> 41592119
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22532256
<TOTAL-LIABILITIES> 64124375
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5694930464
<SHARES-COMMON-STOCK> 439945402
<SHARES-COMMON-PRIOR> 399844596
<ACCUMULATED-NII-CURRENT> 160584621
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 976351162
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2025806573
<NET-ASSETS> 8857672820
<DIVIDEND-INCOME> 215379175
<INTEREST-INCOME> 61754055
<OTHER-INCOME> 0
<EXPENSES-NET> 79650810
<NET-INVESTMENT-INCOME> 197482420
<REALIZED-GAINS-CURRENT> 1070814751
<APPREC-INCREASE-CURRENT> 862081294
<NET-CHANGE-FROM-OPS> 2130378465
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (173704228)
<DISTRIBUTIONS-OF-GAINS> (420453674)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 50518371
<NUMBER-OF-SHARES-REDEEMED> (44339505)
<SHARES-REINVESTED> 33921940
<NET-CHANGE-IN-ASSETS> 2315908079
<ACCUMULATED-NII-PRIOR> 138172809
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TEMPLETON WORLD FUND AUGUST 31, 1997 ANNUAL REPORT AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000225930
<NAME> TEMPLETON FUNDS INC.
<SERIES>
<NUMBER> 002
<NAME> TEMPLETON WORLD FUND - CLASS II
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TEMPLETON FOREIGN FUND AUGUST 31, 1997 ANNUAL REPORT AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000225930
<NAME> TEMPLETON FUNDS INC.
<SERIES>
<NUMBER> 021
<NAME> TEMPLETON FOREIGN FUND - CLASS I
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TEMPLETON FOREIGN FUND AUGUST 31, 1997 ANNUAL REPORT AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000225930
<NAME> TEMPLETON FUNDS INC.
<SERIES>
<NUMBER> 022
<NAME> TEMPLETON FOREIGN FUND - CLASS II
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TEMPLETON FOREIGN FUND AUGUST 31, 1997 ANNUAL REPORT AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000225930
<NAME> TEMPLETON FUNDS INC.
<SERIES>
<NUMBER> 023
<NAME> TEMPLETON FOREIGN FUND - ADVISOR CLASS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> JAN-02-1997<F1>
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 14161703441
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<NUMBER-OF-SHARES-SOLD> 12681374
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<FN>
<F1> COMMENCEMENT OF OFFERING OF SALES JANUARY 2, 1997.
</FN>
</TABLE>